Factory activity in mid-Atlantic region fell for first time in more than three years.

NEW YORK — Mid-Atlantic factory activity retrenched for the first time in more than three years in September, the latest sign of a rapidly slowing economy.

The Philadelphia Federal Reserve Bank said Thursday its business activity index tumbled to negative 0.4 this month from 18.5 in August, far beneath forecasts of about 14.8. It was the first reading below zero since April 2003, indicating a decline in regional manufacturing.

“We’re seeing signs in the Philadelphia survey that the economy is cooling off,” said Gary Thayer, chief economist at AG Edwards & Sons.

The entire survey was troubling, with new orders also slipping into negative territory. The six-month business outlook turned gloomy as well, showing its first negative reading since just before the last recession, which ended in 2001.

“The region’s manufacturing executives were significantly less optimistic about future activity, with most indicators dipping to their lowest readings in six years,” the survey said.

The regional survey is one of the first indicators of U.S. manufacturing every month and is often used as a guide to the health of factories nationwide. It covers eastern Pennsylvania, southern New Jersey and Delaware.

In one area of relief, prices paid by manufacturers eased as energy prices came off record highs. Crude oil futures have fallen dramatically since July, from around $78 to the current $61 a barrel. The employment index also improved modestly, rising to 10.7 from 8.2.

Nonetheless, investors were startled by the unexpected pullback, selling the dollar in earnest and jumping into government bonds, which tend to be a safer bet in tough economic times. Stocks veered lower.

The survey added to evidence that the economy is entering a rough patch led by a sharp slowdown in the housing sector, which is expected to take a toll on consumer spending.

“These are very weak numbers,” said Chris Low, chief economist at FTN Financial.

Many economists had been counting on business investment to pick up where consumers left off. The Philadelphia Fed data suggested, however, this handoff has so far failed to take place.

Source: Reuters