NEW YORK (CNN/Money) - The Federal Reserve Bank of Philadelphia said its closely watched index of manufacturing activity in the mid-Atlantic region of the United States turned negative in July for the first time this year.

The Philly Fed said its index of current manufacturing activity in Pennsylvania, New Jersey and Delaware fell to -3.1 in August from 6.6 in July. Economists, on average, expected the index to rise to 7.8, according to Briefing.com.

The report seemed to contradict an earlier report from the Federal Reserve that said industrial production in the entire United States rose for the seventh straight month in July.

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But Sung Won Sohn, chief economist at Wells Fargo & Co., pointed out that the Philly Fed index included little data from automakers, whose strength helped boost the national number. Without the automakers and utilities, the national index also would have been negative, Sohn said.

The report also seemed to confirm fears that stock-market weakness in July had affected the broader economy.

"The stock market has had more of an effect on businesses than on consumers," Sohn said. "It hurt their confidence, and they had to spend time on accounting issues as opposed to planning for the future."

But Sohn and some other economists are hopeful that the worst impact of the stock market weakness is over, especially since stock prices seem possibly to have found a bottom.

And the Philly Fed said that, despite the grim numbers in its report, most business leaders surveyed were optimistic that activity would recover after August.

Nevertheless, the data for August were quite weak. The Philly Fed's new orders index also fell, to -2.7 from 6.6, while its shipments index fell to -3.3 from 4.6 in July.

The employment index sank to -13.4 from -6.8 in July, indicating manufacturers in the region continue to lay off workers -- though 70 percent of the firms the Philly Fed surveyed said they were holding employment steady.

Such reports will be closely watched by the Fed, whose policy makers decided this week to leave their target for short-term interest rates unchanged, while warning of the possible impact of weak stocks on the broader economy.

In a separate report Thursday, the Labor Department said new weekly claims for unemployment benefits rose slightly last week.