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(Bloomberg News) — Manufacturing in the New York region unexpectedly contracted in August for a third straight month as orders dropped and managers became less optimistic about the future, signaling the industry that has led the economic recovery is at risk of stumbling.

The Federal Reserve Bank of New York’s so-called Empire State Index fell to minus 7.7 from minus 3.8 in July, a report showed today. The median forecast in a Bloomberg News survey called for an index of zero, the dividing line between expansion and contraction. The bank’s six-month outlook gauge dropped to the third-weakest level on record.

Weaker demand from consumers and businesses, coupled with slowing growth in emerging economies and Europe, means factories are ratcheting down production. The Fed, in its policy meeting last week, said growth this year had been “considerably slower” than forecast and announced it would keep its benchmark lending rate near zero at least though mid-2013 to spur growth.