The Philly Fed said its diffusion index for current general activity plummeted to a negative 12.8 in October after spiking to a positive 23.2 in September, with a negative reading indicating contraction.

With the much bigger than expected decrease, the Philly Fed index tumbled to its lowest level since hitting a negative 26.4 in April.

The report said 25 percent of firms reported decreases in general activity in October, up from 17 percent in September, while 12 percent reported increases in general activity in October, down from 40 percent in September. Fifty-eight percent reported no change, up from 43 percent.

The sharp pullback by the headline index came amid a steep drop by the shipments index, which plunged to 6.0 in October from 26.1 in September.

Meanwhile, the number of employees index edged down to 4.6 in October from 5.6 in September but continued to indicate job growth, while the new orders climbed to 18.2 in October from 12.4 in September.

The Philly Fed also said the survey's future indicators suggest widespread expectations for growth over the next six months, as the diffusion index for future general activity rose to a five-month high of 36.2 in October from 31.5 in September.

On the inflation front, the report said the prices paid index rose to 49.2 in October from 46.8 in September, while the prices received index jumped to 26.8 in October from 18.8 in September.

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