A gauge of manufacturing in New York State showed the sector unexpectedly contracted for the third month in a row in August as new orders fell to their lowest level since November 2010, the New York Federal Reserve said in a report on Monday.

The New York Fed's Empire State general business conditions index fell to minus 7.72 from minus 3.76 the month before. Economists polled by Reuters had expected a reading of zero.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. The sector has softened through the first half of the year alongside the broader economic recovery.

New orders worsened to minus 7.82 from minus 5.45, while inventories fell to minus 7.61 from minus 5.56.

This is consistent with the negative tone that has permeated throughout the markets. Clearly we are not starting the new round of manufacturing data on good footing, said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

U.S. stock index futures trimmed gains immediately following the data, but Wall Street was still poised to open higher following a volatile week. Treasury prices gained slightly and the U.S. dollar hit a session low against the yen.

Employment gauges showed a slight improvement. The index for the number of employees inched up to 3.26 from 1.11 and the average employee workweek index rose to minus 2.17 from minus 15.56.

Prices paid eased, falling to 28.26 from 43.33. The index was also at its lowest level since November 2010.

The outlook for the months to come also deteriorated, falling to its lowest level since February 2009. The index of business conditions six months ahead dropped to 8.70 from 32.22.

(Reporting by Leah Schnurr; additional reporting by Richard Leong, Editing by Chizu Nomiyama)

Manufacturing