NEW YORK (CNN/Money) - A closely watched measure of manufacturing activity in the mid-Atlantic region grew in June, the Philadelphia Federal Reserve said Thursday, beating analysts' forecasts but disappointing Wall Street hopes for an even bigger gain.

The Philadelphia Fed's index of business conditions in Pennsylvania, New Jersey and Delaware rose to 4.0 from negative 4.8 in May, pointing to expansion in the industry. Economists, on average, expected an index reading of 3.3, according to a Reuters poll.

But Wall Street traders were probably expecting the report to be even better, based on Monday's report from the New York Fed that its "Empire State" index of New York manufacturing activity nearly tripled in June, hitting the highest level in its two-year history.

In their disappointment, traders sold stocks and bought bonds in midday trading.

"It is disappointing in the wake of the huge rise in the Empire State survey -- the indexes are usually at similar levels," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd.

Some of the Philly Fed index's components were also negative, throwing some cold water on hopes of a strong rebound in the long-suffering factory sector.

The "new orders" component improved, but stayed in negative territory, rising to negative 0.5 from negative 3.8 in May. Shipments also showed contraction, coming in at negative 1.2 from negative 2.3 in May.

The "prices paid' index fell to 5.8 from 8.9 in May, but the "prices received" index fell deep into negative territory, printing at negative 9.5, a steep drop from May's reading of positive 2.1.

Layoffs in the sector picked up pace, with the "employment" index falling to negative 12.9 from negative 10.9 in May. The "average employee work week" component fell to negative 10.1 from negative 9.1, an ominous sign, since employers typically ask workers to stay longer when production rises, a first step to future hiring.

The "inventories" index reversed itself, shifting to positive 7.2 from negative 7.3 in May. And the "unfilled orders" component jumped to 7.9 from negative 7.4 in May.