NEW YORK (CNN/Money) - Manufacturing activity in New York state improved dramatically in October, the New York Federal Reserve said Wednesday, raising hopes of a nationwide factory rebound -- though many economists suggested taking the New York Fed's data with a grain of salt.

The "general business conditions" index of the New York Fed's Empire State Manufacturing Survey of about 100 regional manufacturers jumped to 33.7 in October from 18.35 in September. Economists, on average, expected the index to fall to 16, according to Briefing.com.

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Though October's reading marked a record high for the index, the survey has only been in existence since July 2001, covers only one state, and has often been volatile.

"We've never seen how this index behaves in a recovery; we've never seen it in anything but a downturn," said former Fed economist Lara Rhame, now a senior economist with Brown Brothers Harriman. "It doesn't surprise me that we'd get record levels, now that manufacturing is recovering."

Rhame also pointed out that the index posted a similar dramatic jump in June, surging to 27.6 from 10.6 in May, but that surge was not fully reflected in national manufacturing data -- the national purchasing manager's index of the Institute for Supply Management rose to just 49.8 in June from 49.4 in May.

Read the survey results Empire State Manufacturing Survey (pdf)

Nevertheless, there were encouraging signs in the report. The "number of employees" index was positive for the first time since May, rising to 10.78 from -0.92 in September. The "average employee workweek" index fell to 11.9 from 15.7, but it was the first time in more than a year that both employment indexes were positive at the same time.

The new orders index rose to 34.8 from 13 in September. Shipments rose to 25.3 from 17, and inventories fell to -13.73 from -4.59, a sign that businesses are possibly having a hard time keeping up with demand.

"Should this report's strength be duplicated in other regions, this would be consistent with our fourth-quarter and 2004 outlook of economic activity being increasingly driven by production activity," said Mat Johnson, chief economist at Quantit Economic Group in San Francisco.

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Businesses continue to face pricing pressures, however. Though the survey's "prices paid" index fell to 6.86 from 15.6, its "prices received" index also fell, to -10.78 from -8.26.

The Fed has long been worried about the inability of many U.S. companies, especially goods manufacturers, to raise their prices. With commodity prices rising, the fear is that corporate profitability will be pinched, resulting in belt-tightening and a continued reluctance to hire new workers.

With this fear of "disinflation" in mind, Fed officials have said they are likely to keep their target for the federal funds rate, an overnight bank lending rate, low for a long time. Low rates make borrowing cheaper, which the Fed hopes will boost the demand for and prices of goods.