Growth in Philadelphia-area manufacturing activity showed a significant slowdown in the month of May, the Federal Reserve Bank of Philadelphia revealed in a report on Thursday.
The Philly Fed said its current general activity index tumbled to 2.6 in May from 17.6 in April, hitting its lowest level in two years.
While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 16.0.
The decrease by the headline index came as the number of employees index plunged to 25.5 in May from 41.4 in April.
The prices paid index also slid to 78.9 in May from 84.6 in April, and the prices received index fell to 51.7 from 55.0.
On the other hand, the report showed the new orders index rose to 22.1 in May from 17.8 in April, while the shipments index jumped to 35.3 from 19.1.
Looking ahead, the Philly Fed said the survey's future indexes remained positive but reflect muted optimism for growth over the next six months.
"We shouldn't be surprised to see a moderation in manufacturing growth as goods demand slows and supply chain problems bite," said Oren Klachkin, Lead U.S. Economist at Oxford Economics. "Stronger services spending and higher prices and interest rates will pose headwinds, but goods demand should remain solid enough to keep factory output rising."
He added, "Supply-chain snarls will act as a handbrake on activity, and these challenges won't unwind any time soon. Indeed, while China is starting to ease its Covid restrictions, activity will remain heavily disrupted in the near term."
On Monday, the New York Federal Reserve released a separate report showing New York manufacturing activity unexpectedly contracted in the month of May.
The New York Fed said its general business conditions index plunged to a negative 11.6 in May from a positive 24.6 in April. A negative reading indicates a contraction in regional manufacturing activity.
Economists had expected the index to slump to a positive 15.5, which would have still indicated growth in the sector.