Philly Fed's manufacturing gauge slumps to 20-month low

(Reuters) - A gauge of manufacturing activity in the U.S. Mid-Atlantic region slid to the lowest in nearly two years in December, with new orders and shipments both contracting in an indication the factory sector remains in a slump.

The Federal Reserve Bank of Philadelphia said on Thursday that its monthly manufacturing index fell for a second straight month to negative 16.4 - the lowest since April 2023 - from negative 5.5 in November. The median forecast among economists polled by Reuters was for a reading of positive 3.0. Negative readings indicate a contraction in activity.

The report's new orders index tumbled to negative 4.3, the lowest since May, from plus 8.9 in November.

Factory managers continued to be optimistic about prospects in six months' time but their growth outlooks nonetheless softened from a three-year high in November.

The regional report from the Philly Fed suggests the factory sector, accounting for just over 10% of the economy, is continuing to struggle finding its footing in the wake of the Federal Reserve's interest rate hikes in 2022 and 2023. While the Fed has shifted to rate cuts in the last half of this year, it is not expected to ease that much further from here and market-based measures of borrowing costs remain notably higher than they were in early 2022 and continue to exert pressure on investment.

On Tuesday the Fed reported that manufacturing output in November rebounded less than expected from a month earlier and production declined 1.0% year-on-year.

Also clouding the outlook is President-elect Donald Trump's ambitions for hefty new tariffs on goods imported from abroad, which could trigger counter levies to be imposed on American exports by U.S. trading partners.

(This story has been corrected to remove the word 'unexpectedly,' in paragraph 2)

(Reporting By Dan Burns; Editing by Chizu Nomiyama)