The numbers: The Philadelphia Fed said Thursday its gauge of regional business activity dropped to negative 12.3 in July from negative 3.3 in the prior month.
Economists polled by the Wall Street Journal expected a 1.6 reading.
Any reading below zero indicates deteriorating conditions in the manufacturing sector. This is the second straight month in contraction territory.
Key details: The barometer on new orders dropped a sharp 12.4 points to negative 24.8 in July. The shipments index rose 4 points to 14.8.
The prices paid index fell 12 points to 52.2, its lowest reading since January.
The measure on six-month business outlook sank 11.8 points to negative 18.6. The future capital expenditures index fell 7 points to 4.4, its lowest reading since March 2013.
Big picture: U.S. manufacturing, the star performer of the pandemic, is suddenly struggling. Economists are concerned that layoffs and cutbacks in output are on the horizon.
The Philadelphia Fed index is one of several regional manufacturing gauges that offer timely reads of the manufacturing sector.
Last week, the similar Empire State survey released by the New York Fed showed manufacturing activity improved, with the business conditions index jumping 12.3 points to 11.1 in July.
The national ISM manufacturing index fell to 53% in June, the lowest reading since June 2020. It has been above the 50 breakeven level for 25 straight months. The July reading will be released early next month.
Market reaction: Stocks
were set to open lower on Thursday after several days of strong gains.