By Xavier Fontdegloria

Manufacturing activity in the U.S. Third Federal Reserve District expanded in July for second consecutive month, albeit at a slower pace than in June, data from the Federal Reserve Bank of Philadelphia's Manufacturing Business Outlook survey showed Thursday.

The diffusion index for current general activity decreased to 24.1 in July from the 27.5 level registered in June. The reading is slightly above economists' forecasts in a Dow Jones Newswires poll, which estimated the index to be at 20.0.

The survey polls manufacturers in the Third Federal Reserve District -- which covers eastern Pennsylvania, southern New Jersey and Delaware -- about the direction of change in overall business activity and in various other measures at their plants.

Despite its lower reading compared with the previous month, the index signals that overall manufacturing activity in the region is expanding for a second straight month, after June's strong rebound.

Manufacturing activity, however, is still below February's pre-pandemic levels, when the diffusion index stood at 36.70.

"The survey's current indicators for general activity, new orders and shipments showed positive readings for the second consecutive month, coinciding with the phased reopening of the economy in our region," the Philly Fed said. Survey responses were collected from July 6 to July 13.

In July, the percentage of firms reporting increases in activity (45.1%) far exceeded the percentage reporting decreases (21.1%), albeit the margin decreased compared with June.

The index for new orders rose to 23.0 from 16.7, with nearly 47% of the firms reporting increases. The current shipments index fell 10 points to 15.3.

Respondents reported increases in manufacturing employment overall for the first time since the pandemic hit the region, as the current employment index rose sharply to 20.1, the highest reading since October, the Philly Fed said.

More than 29% of the companies polled reported increasing employment levels, while 9.1% reported decreases. The vast majority (61.6%) reported steady employment levels.

The inventories and the delivery times indexes swung to contraction territory, data showed, suggesting shorter delivery times.

The diffusion index for future general activity fell 30 points from its June reading to 36.0, with roughly half of the firms reporting increases this month, while 13% expected decreases in activity over the next six months.

"The survey's future indexes suggest that respondents continue to expect growth in manufacturing activity over the next six months," the Philly Fed said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

July 16, 2020 09:16 ET (13:16 GMT)