U.S. manufacturing activity unexpectedly slowed in September as new orders retreated from a more than 16-1/2-year high, in line with expectations of a moderation in economic growth after a fiscal stimulus boost over the summer.
The Institute for Supply Management (ISM) said on Thursday its index of national factory activity fell to a reading of 55.4 last month from 56 in August, which was the highest level since November 2018. Despite last month’s dip in the index, September marked the fourth straight month of growth.
A reading above 50 indicates expansion in manufacturing, which accounts for 11.3% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 56.3 in September.
The slowdown in manufacturing activity last month supports views that the recovery from the COVID-19 recession is losing steam as government money to help businesses and millions of unemployed runs out. In addition, new coronavirus cases are rising and infections are expected to accelerate in the fall.
Gross domestic product is forecast topping a record 32% annualized rate in the third quarter after plunging at a historic 31.4% pace in the April-June period. Growth estimates for the fourth quarter have been cut to around a 2.5% rate from above a 10% pace.
The ISM’s forward-looking new orders sub-index decreased to 60.2 from a reading of 67.6 in August, which was the strongest since January 2004. The survey’s measure of order backlogs at factories, however, rose as did orders for exports.
Factory employment continued to improve last month, but remained in contraction territory. The ISM’s manufacturing employment gauge rose to a reading of 49.6 from 46.4 in August.
Coming on the heels of a report on Wednesday showing private payrolls increased more than expected last month, the improvement in hiring at factories bodes well for employment growth in September.
The government’s closely followed employment report to be released on Friday is expected to show 850,000 jobs created in September after adding 1.371 million in August, according to a Reuters survey of economists. That would leave nonfarm payrolls about 10.7 million below their pre-pandemic level.
Reporting By Lucia Mutikani; Editing by Chizu Nomiyama