US manufacturing activity slowest in nearly 2.5 years in September – ISM

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WASHINGTON, Oct 3 (Reuters) – U.S. manufacturing activity grew at its slowest pace in nearly two-and-a-half years in September as new orders contracted, likely because rising interest rates interest rate to control inflation has dampened demand for goods.

The Institute for Supply Management (ISM) said on Monday its manufacturing PMI fell to 50.9 this month, the lowest since May 2020, from 52.8 in August.

A reading above 50 indicates an expansion in the manufacturing industry, which accounts for 11.9% of the US economy. Economists polled by Reuters had expected the index to fall to 52.3.

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Part of the slowdown in the manufacturing sector reflects the rotation of spending from goods to services. Government data last Friday showed that spending on durable manufactured goods rose little in August, while spending on services increased.

The Federal Reserve has since March raised its key rate from near zero to the current range of 3.00% to 3.25%, and last month signaled that bigger increases were on the way this year.

Higher borrowing costs reduce spending on big-ticket items like appliances and furniture, which are typically purchased on credit.

The ISM survey’s forward-looking new orders sub-index fell to 47.1 last month, also the lowest since May 2020, from 51.3 in August. This is the third time this year that the index has contracted. Order books are also reduced. While this indicated a further slowdown in manufacturing, it was also to alleviate bottlenecks in the supply chain.

The ISM measure of supplier shipments fell to 52.4 from 55.1 in August. A reading above 50% indicates slower deliveries to factories.

With supply chains loosening, inflationary pressures at the factory gate continued to ease.

A measure of prices paid by manufacturers fell to 51.7, the lowest reading since June 2020, from 52.5 in August. The continued slowdown is fueled by falling commodity prices. Annual consumer and producer inflation slowed in August, raising hopes that prices had peaked.

The ISM survey’s factory employment measure fell to 48.7 from a five-month high of 54.2 in August. This is the fourth time this year that the index has contracted. The index was a poor predictor of manufacturing payrolls in the government’s closely watched jobs report, which has steadily risen despite fluctuations in the ISM jobs gauge.

Although employment growth is slowing, the demand for workers remains strong. There were 11.2 million unfilled jobs across the economy at the end of July, with two job vacancies for every unemployed person.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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