The Philadelphia branch of the Federal Reserve reported yesterday that the northeast U.S. manufacturing sector contracted this month.

According to the report, manufacturing firms responding to their survey indicated weaker business conditions for the second straight month.  The actual survey index fell to -16.6 from a reading of -5.8 in May.  This latest report was far worse than analysts were expecting.

Separately, the Associated Press has reported a slowdown in China’s factories.

All of this news combined to sink the Dow Jones industrial average yesterday by 251 points, its second-worst day of the year. The loss wiped out the Dow’s gain for the week.

The market was right to be jittery.  Manufacturing is a key driver of the U.S. economy, and bad news for the nation's industrial sector can't bode well for the country.

Interestingly, a slowdown in China is also viewed as bad news for the U.S.  The Associated Press suggests that "slowing manufacturing in China was troubling since that country has helped drive global economic growth over the past four years. China is a major importer of copper and other basic materials."

What's needed is a revitalization of U.S. manufacturing.  The Alliance for American Manufacturing (AAM) has frequently called for a national manufacturing strategy that would include revisions to tax and trade policy as well as investments in workers skills and high-tech research for the 21st Century.

Such a "Plan to Save Manufacturing" could help put American industry at the forefront of breakthrough areas like renewable energy production.  Doing so might lead to better manufacturing reports than that of yesterday's Philadelpia Fed Survey.