Mid-Atlantic manufacturers see better business conditions this month, although orders and shipments slowed sharply, according to a report released Thursday by the Federal Reserve Bank of Philadelphia.

The Philadelphia Fed said its index of general business activity within the factory sector rose to 12.5 in March from 10.2 in February. It is the highest reading since April 2011.

Economists surveyed by Dow Jones Newswires expected the latest index to edge up to 10.5. Readings under zero denote contraction, and above-zero readings denote expansion.

Within the Philly Fed survey, the subindexes weakened significantly but still positive this month.

The new orders index fell to 3.3 from 11.7 in February while the shipments index declined to 3.5 from 15.0.

The important hiring index rebounded to 6.8 this month after it had fallen to 1.1 in February from 11.6 in January. The workweek index dropped to 2.7 from 10.1 last month.

Price pressures eased this month. The prices-paid index fell to 18.7 in March from 38.7 in February, while the prices-received index declined to 8.4 from 15.0 last month.

Earlier Thursday, the New York Fed reported factory activity in New York state was expanding in March for the fourth consecutive month, but--unlike in the Philly survey--cost pressures in that region surged this month. Nationwide, the factory sector has been one of the best performers in the economy.

Philadelphia manufacturers remain optimistic about the future. The expectations index for business conditions over the next six months stood at 32.9, little changed from 33.3 last month.

In a series of special questions, the Philly Fed asked manufacturers about second-quarter production schedules. The survey showed 59% expect to increase production, with 24.2% planning increases of more than 5%. Another 23.1% expect to cut output next quarter, with 14.1% planning cuts of more than 5%.

-By Kathleen Madigan, Dow Jones Newswires; 212-416-2466; kathleen.madigan@dowjones.com