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Feb. 21, 2019, 10:02 a.m. EST

Philly Fed manufacturing index slumps into negative territory in February for the first time in nearly three years

Index falls to negative 4.1, well below expectations of a 14 reading

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By Greg Robb, MarketWatch


Bloomberg News/Landov Enlarge Image
Smoke rises from a refinery at sunset in Philadelphia.

The numbers: The Philadelphia Fed manufacturing index in February dropped sharply into negative territory. The index fell to a seasonally adjusted reading of -4.1 from 17 in the prior month. This is the first negative reading since May 2016.

Any reading below zero indicates worsening conditions. Economists polled by Econoday expected a reading of 14.

What happened: Below the headline, the indexes for new orders and shipments dropped sharply into negative territory. The employment indicator remained positive. Firms were generally optimistic about the outlook for the next six months.

The big picture: The sharp drop fits with other manufacturing data suggesting the U.S. is now succumbing to the global industrial downturn. The Empire State index rebounded in February but remained close to a two-year low. The flash U.S. manufacturing PMI fell to the worst level in 17 months.

What are they saying? “We read the sharp drop in February orders and shipments alongside a modest inventory build as likely reflecting the effects of the government shutdown...and the concerns about the budget process that could have led to a second shutdown in February. If so, we could expect a rebound in current conditions in March,” said Michael Gapen, chief U.S. economist at Barclays.

Other economists, like David Rosenberg of Gluskin Sheff, were less sanguine.

Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.14%  opened lower Thursday but the index is up more than 19% from its 52-week low hit on Dec. 24.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,219.52
+37.07 +0.14%
Volume: 255.26M
Sept. 13, 2019 4:56p
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Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.

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