The Philadelphia Federal Reserve Bank said key mid-Atlantic manufacturing indexes slipped into negative territory in May.
The business survey, taken midway through the month, found the diffusion index of manufacturing activity dropped from 8.5 in April to minus 5.8.
The index for new orders in May fell from 2.7 to minus 1.2. Like the headline index, the new orders index fell into the negative for the first time in eight months.
The employment index, also positive for eight consecutive months, fell 19 points to minus 1.3 in May.
"The percentage of firms reporting decreases in employment, 16 percent, was slightly higher than the percentage reporting increases, 14 percent," the report said.
Average hours of work in the region also fell in the month.