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Manufacturing activity shrinks
Closely watched supply managers' index of activity shows contraction for first time since January.
October 1, 2002: 2:23 PM EDT

NEW YORK (CNN/Money) - Manufacturing activity in the United States shrank for the first time in eight months in September, the nation's purchasing managers said Tuesday, raising questions about the economy's future strength.

The Institute for Supply Management (ISM) said its key gauge of manufacturing activity came in at 49.5 percent in September versus 50.5 percent in August. Any reading over 50 percent indicates expansion. Economists had expected a reading of 51 percent, according to

"After a strong first quarter, the manufacturing sector has softened significantly," Norbert Ore, chair of the ISM's business survey committee, said in a statement. "Stagnant and sluggish are apt descriptions for manufacturing at this time."

Separately, the Commerce Department said construction spending fell 0.4 percent in August after falling a revised 0.1 percent in July. Economists, on average, expected construction spending to fall 0.2 percent, according to

"The data flow has turned decidedly negative," said Brown Brothers Harriman economist Lara Rhame, a former economist at the Federal Reserve.

But Rhame said markets likely expected the ISM report to be worse than it was, and U.S. stock prices were only mixed after the reports, while Treasury bond prices fell.

The manufacturing report followed a report Monday from the National Association of Purchasing Management-Chicago that said factory output in the Midwest contracted for the first time since February.

The ISM said some of the purchasing and supply executives it surveyed said they were worried about rising energy prices and the possible impact of a war with Iraq. They said the sector seemed to be recovering, but at a slow pace.

Ominously, the ISM's employment Index dropped to 44.9 percent in September from 45.8 percent in August, indicating that businesses were cutting jobs at a quicker pace.

On the other hand, the new orders index rose to 50.2 from 49.7 in August, indicating manufacturing activity could pick up again in the future.  Top of page

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