Factory output dropped in April and manufacturing activity in New York State contracted this month, according to reports Wednesday, signs that slowing global demand is weighing on the economy.

The anemic growth picture was highlighted by another report Wednesday showing the largest decline in wholesale prices in three years. The data gives the Federal Reserve latitude to keep priming the economy with an easy monetary policy.

"The somewhat sluggish economic growth and limited inflation are the equivalent of rocket fuel for the Fed," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.

Stocks on Wall Street trended higher on the reports, while gold prices fell to their lowest in nearly a month.

Long Island continues to slowly lose manufacturing jobs, as it did for most of the recession. It had 72,500 manufacturing jobs in March, down from 73,700 the year before, according to the New York State Labor Department.

U.S. manufacturing production fell 0.4 percent last month after declining 0.3 percent in March, the Fed said. Economists had expected industrial output to fall only 0.2 percent last month.

The drop in factory output, which accounts for more than 70 percent of industrial production, was broad-based and in keeping with data earlier this month that showed factory payrolls failed to expand last month.

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A second report showed manufacturing activity in New York State fell in May as new orders, unfilled orders and shipments of finished goods all declined.

The New York Federal Reserve's "Empire State" general business conditions index fell to minus 1.43 this month from 3.05 in April. A reading below zero indicates a contraction in the region's factories.

A recession in the eurozone and slower growth in China has undercut demand for U.S. exports, taking some steam out of the factory sector. A strengthening in the dollar against both the euro and the yen also has hurt.

Manufacturing also has been hit hard by belt-tightening in Washington, in particular $85 billion in across-the-board spending cuts that kicked in on March 1.

Other areas of the economy such as employment, housing and the retail sector have shown surprising resilience, which should limit the degree to which the economy slows. Manufacturing accounts for about 12 percent of U.S. GDP.

With Carrie Mason-Draffen