A gauge of regional manufacturing activity slumped to a near two-year low in June, suggesting US factories were faltering, overshadowing better than expected readings on the labour and housing markets. The Philadelphia Federal Reserve Bank said yesterday its business activity index dropped to -7.7, the lowest level since July 2009, from 3.9 in May. Economists had expected the gauge of factory activity in the Mid-Atlantic to rise to 6.8 and none had expected a reading lower than zero, which indicates a contraction in activity. Coming on the heels of a survey on Wednesday showing a contraction in factory activity in New York state, the report could stoke fears of a sharp slowdown in manufacturing, a sector that has powered the US economic recovery. Factory activity is being hampered by supply chain disruptions following the Japan earthquake. While both the jobless claims and housing data moved in a better direction, the levels suggested the recovery remains quite weak. Initial jobless claims remained above the 400,000 level for a tenth straight week. Economists say claims would need to drop below that level to offer a clear sign of an improving labour market. At the same time, economists have been dismissive of moves in US housing data because construction and sales have moved to historically low levels. A poll found that economists expect the housing market to sink further this year before prices start rising only marginally in 2012. From / Gulf News