An index designed to measure manufacturing activity in the Mid-Atlantic states plunged in September, upsetting financial markets and raising concerns that the slowing housing market could be sapping the economy's strength at a faster pace than expected, The Wall Street Journal reported on Friday.

The Federal Reserve Bank of Philadelphia said that its business conditions index, a gauge of the regional manufacturing sector's health, fell to a reading of negative 0.4 in September, compared with 18.5 in August.

The September reading was the first negative reading since April 2003. Economists had expected the index to register 15 in September. Negative readings denote contraction.

The change in the Philadelphia index was so striking that financial markets reacted swiftly. Stock prices and the dollar sank while bond prices - which tend to benefit from negative economic news - rallied.

The Dow Jones Industrial Average fell more than 50 points following the release of the report at noon and ended the day at 11533.23, down 79.96, or 0.69 percent.

The Philadelphia Fed report, covering business conditions in eastern Pennsylvania, southern New Jersey, and Delaware, is widely viewed as a proxy for national manufacturing trends, and as such its decline raises questions about the health of the broader factory sector.

"Generally, the Philly data (report) has the best correlation with industrial production of all the regional indexes, so (it) needs to be treated seriously," Alan Ruskin, a strategist at RBS Greenwich Capital in Greenwich, Connecticut, was quoted as saying.

Source: Xinhua