Factory activity declined in New York state earlier this month and employment in the sector failed to grow for the first time since June, signs that U.S. manufacturing may have lost a step.

A separate report on Friday showed prices for U.S. exports unexpectedly fell in October, the latest indication of global economic weakness.

The New York Fed's "Empire State" index of business conditions at factories fell to minus 2.21 from 1.52 in October, the first negative reading since May. Economists in a Reuters poll had forecast an index of 5.00. A reading above zero indicates expansion.

The report underscores the headwinds facing the world's largest economy, where the recovery remains fragile.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. If the weakness in New York also appears in other major manufacturing regions, it would mark a setback after data in October showed relatively robust hiring across the economy and strong expansion at factories.

A federal government shutdown in October had been expected to drag on growth, but data in the wake of that congressional impasse has been mixed.

Labor market conditions in New York's factories weakened, with the index for the number of employees slipping to 0.0 from 3.61 in October. The average employee workweek index also sank to minus 5.26 from 3.61.

U.S. Treasuries prices pared earlier losses following the release of the factory data, which backed the view the U.S. central bank will keep buying bonds to help support the economy.

Separately, the U.S. Labor Department said export prices dropped 0.5 percent last month, the seventh decline in eight months. Analysts polled by Reuters had expected a slight increase in export prices.

The decline suggests that consumers in crisis-stricken Europe and other major trading partners are struggling so much that American producers have little leverage to raise prices.

The European Central Bank cut interest rates earlier this month in part over concerns the region's weak economy is weighing too much on prices.

The Labor Department's report also showed that prices for U.S. imports fell 0.7 percent in October, which was a sharper decline than expected.

A 3.6 percent fall in petroleum imports, which was the biggest fall in more than a year, drove the drop in overall prices. However, there were signs that weakness abroad was also fueling price declines.

Prices for imports from Japan dropped 0.2 percent last month, a possible sign that the downward pressure on Japan's currency from its extremely accommodative monetary policy has made its exports more competitive abroad.

In a possible sign of the wind in Japan's sails, prices for auto imports fell 0.1 percent and were down 1.4 percent in the year through October. The 12-month decline is the biggest drop since the Labor Department began tracking it in 1981.