U.S. Mid-Atlantic region manufacturing slipped for a second month in October and a gauge of future economic activity rose in September for the first time in three months, offering a mixed outlook for the economy. Economists said Thursday's data, combined with a drop in weekly jobless claims, suggested the economy will continue to grow at a slow pace in coming months and allow the Federal Reserve to hold interest rates steady at its policy meeting next week. "This would give the Fed ammunition to maintain the status quo, which is not a bad thing," said Anthony Chan, chief economist with J.P. Morgan Private Client Services in New York. The Philadelphia Federal Reserve Bank said its business activity index fell to -0.7 in October from -0.4 in September, below economists' forecasts for a rise to 7.0 in October. Any reading above zero indicates growth in the region's manufacturing sector. The Fed survey covers Pennsylvania, New Jersey, Delaware and Maryland. The new orders component of the Philadelphia Fed index, a gauge of future growth, rebounded to 13.4 in October from -1.3 in September. The jobs component fell to 9.4 from 10.7 in September. The regional survey is one of the first indicators of U.S. manufacturing every month and is often used as a guidepost to the overall state of factories nationwide. In a separate report, the Labor Department said first-time claims for state unemployment insurance dropped 10,000 last week to 299,000 from a revised 309,000. The level was below Wall Street forecasts of a rise to 312,000 new claims. The Conference Board, a private business-backed research group, said its Index of Leading Economic Indicators gained 0.1 percent in September to 137.7 after falling 0.2 percent in August. Analysts had forecast a slightly stronger 0.3 percent rise. U.S. government debt prices pared losses after the Philadelphia Fed index but were still down from Wednesday, while stocks were little changed, primarily in response to stronger earnings for some blue-chip companies, and the dollar was weaker. CLAIMS FALL While the decline in jobless claims was welcomed, analysts said it did not alter a picture of gradual slowing in the pace of expansion. "When the economy is shifting, it's not uncommon to get mixed signals," said Mark Vitner, senior economist for Wachovia Securities in Charlotte, North Carolina. "My general sense is the economy is slowing despite this morning's unexpectedly large drop in claims." Still, labor markets remain relatively healthy. The four-week moving average of new claims -- viewed as a more accurate indicator of longer-term labor conditions because it smoothes out week-to-week volatility -- fell to its lowest in nearly four months. It declined to 307,750 last week from 313,500 the previous week, a third straight drop. "We would still hesitate to make the case that there has been a real change in the trend. ... There is abundant evidence that companies have cut back their hiring plans, indicating diminished confidence about the future," said Ian Shepherdson, chief economist for High Frequency Economics in Valhalla, New York. The number of people who remained on benefit rolls after drawing an initial week of aid rose 25,000 to 2.45 million in the week ended October 7, the latest week the data were available. The jobless claims data is one of the final reports published before Federal Reserve policy-makers meet on October 24-25 to weigh their next move on interest rates. The data in the claims report also covers the survey week used in calculating the October payrolls report, scheduled for release November 3. CHEAPER GAS, RISING CONFIDENCE Analysts said higher stocks and lower gasoline prices likely helped boost the leading indicators index. Five of the 10 measures of activity captured by the index contributed to the September gain, led by consumer expectations, money supply and stock prices. Analysts expect the U.S. central bank to leave benchmark interest rates unchanged at 5.25 percent for the rest of the year after several recent reports pointed to economic growth at a slower, less inflationary pace than earlier in the year.