Manufacturing in the New York region shrank more than forecast in December, showing weakness in the industry is persisting as the year draws to a close.

The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1, the fifth month of contraction, from minus 5.2 in November. The median forecast of 55 economists in a Bloomberg survey called for minus 1. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

A slowdown in manufacturing is holding back the three-year-old expansion even as recent advances in housing and sustained household purchases contribute to growth. Companies such as Lakewood Industries Inc. are seeing less corporate spending as lawmakers struggle to find enough common ground to avert about $600 billion in tax increases and budget cuts in 2013.

“The manufacturing sector is just lackluster now,” Terry Sheehan, an economic analyst for Stone & McCarthy Research Associates in Princeton, New Jersey, said before the report. “We’re seeing slowing exports, there’s a lot of uncertainty at home with the fiscal cliff and the general slowing of the economy.”

Bloomberg survey estimates for the December figure ranged from minus 10 to 8.5. In a supplemental question from the Fed, area factory managers were asked about superstorm Sandy’s effect on revenue. Respondents in New York said they anticipated no effect on this month’s sales from the storm.

The Empire State gauge of new orders decreased to minus 3.7 from 3.1 in November. A measure of shipments dropped to 8.8 from 14.6.

Factory Employment

The measure of factory employment climbed to minus 9.7 from minus 14.6 in November.

The index of prices paid climbed to 16.1 from 14.6, while prices received fell to 1.1 from 5.6.

Factory executives in the New York Fed’s district were more optimistic about the future. The gauge measuring the outlook six months from now climbed to 18.7 from 12.9.

Manufacturing makes up about 12 percent of the U.S. economy and about 6 percent of New York’s.

Economists monitor the New York report and Philadelphia Fed factory readings, due Dec. 20, for clues about the Institute for Supply Management figures on U.S. manufacturing, set for release Jan. 2.

November Production

Output at factories, mines and utilities increased 1.1 percent last month, the biggest gain in two years, the Fed reported last week. Manufacturing, about 75 percent of production, surged 1.1 percent in November, the most this year.

Companies such as Lakeland Industries, a Ronkonkoma, New York-based maker of protective work clothing, are seeing domestic as well as overseas firms holding back on spending as American lawmakers debate how best to reduce the deficit and avert about $600 billion in tax increases and budget cuts at the start of 2013.

“We do see the U.S. economy slowing down because of this fiscal cliff dilemma,” Christopher J. Ryan, president and chief executive officer of Lakeland Industries, said on a Dec. 13 conference call. “A lot of people are not spending money, they’re sitting back waiting for resolution in Washington. And when I talk to some of the international markets they’re doing the same thing. They’re all sitting on their hands waiting for the U.S. Congress to do something.”

Global Economy

Some manufacturers indicated that a new bout of global economic weakness would have to emerge before they pursue additional cost-cutting.

“In terms of what would need to change for us to start changing our posture in terms of investing in the business and growing, I would say, we’d have to see a visible downward inflection point that’s new in one or more regions of the world,” David W. Meline, chief financial officer of St. Paul, Minnesota-based 3M Co., said in response to a question on a Dec. 12 conference call. “We’ve seen that in Europe and been managing the business very carefully in Western Europe now for almost two years.”

3M, the manufacturer of products including Ace bandages and dental braces, reaffirmed its 2012 earnings forecast, lowered in October because of what it called the “economic realities.”

Sustained consumer spending may prevent a further slide in manufacturing demand. Retail sales climbed 0.3 percent following an October decrease of 0.3 percent, Commerce Department figures showed last week in Washington.

Retail Sales

Americans snapped up clothes and electronics at stores and online last month, while vehicle sales jumped as some Northeast residents sought replacements for autos damaged by Sandy. Cheaper gasoline led to the largest decline in service-station receipts in four years and restrained the value of all purchases.

Fed policy makers remain dissatisfied with the pace of growth. The central bank members last week pledged to buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program, and linked the outlook for its main interest rate to unemployment and inflation.

“The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor-market conditions,” they said in the statement.