While activity in the mid-Atlantic region's manufacturing sector has continued to decrease in April, a report released by the Federal Reserve Bank of Philadelphia on Thursday showed that the sector has contracted less severely.

The Philly Fed said its index of activity in the sector rose to a negative 24.4 in April from a negative 35.0 in March, with a negative reading indicating a contraction in the sector. Economists had expected a more modest increase to a negative 32.0.

A notable slowdown in the pace of contraction in new orders contributed to the improvement in the sector, with the new orders index rising to a negative 24.3 in April from a negative 40.7 in the previous month.

At the same time, the report showed an acceleration in the pace of contraction in shipments, as the shipments index fell to a negative 35.7 from a negative 26.5.

While the Philly Fed also said that the number of employees index rose to a negative 44.9 in April from a negative 52.0 in March, the reading continues to indicate considerable weakness in the labor market.

On the inflation front, the prices paid index edged down to a negative 31.5 in April from a negative 31.3 in March, while the prices received index showed a notable decline to a negative 41.4 from a negative 32.6 in the previous month.

Peter Boockvar, equity strategist at Miller Tabak, said, The discrepancy in the monthly change is evidence that in a tough economy companies clearly don't have pricing power.

Looking forward, the Philly Fed said that most of the broad indicators of future activity improved in April, suggesting that the region's manufacturing executives expect declines to bottom out over the next six months.

The future general activity index remained positive for the fourth consecutive month, jumping to 36.2 in April from 14.5 in March. The indexes for future new orders and shipments also showed notable increases.

Despite the expected improvement in general activity, the Philly Fed said firms still indicated that employment would continue to fall over the next six months. The future employment index rose to a negative 12.0 from a negative 16.5 but remained negative for the seventh consecutive month.

The Philly Fed noted that the firms surveyed in April were asked special questions about the impact of credit conditions on their operations.

While 27 percent of the firms indicated they were having difficulty obtaining financing for long-term uses such as capital spending, 22 percent of the firms said they were having difficulty obtaining credit for financing short-term uses such as paying workers or acquiring inventories.

Sixteen percent of the firms indicated that difficulty obtaining credit had reduced production or sales, the Philly Fed said.

On Wednesday, the New York Federal Reserve released its regional manufacturing report, which also showed a notable slowdown in the pace of contraction in the sector.

The report showed that the index of activity in the sector rose to a negative 14.7 in April from a negative 38.2 in March. Economists had been expecting the index to edge up to a negative 35.0.

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