NEW YORK (CNNMoney.com) -- Growth in manufacturing slowed more than expected in September, according to a closely watched survey of executives in the sector.

The Institute of Supply Management's manufacturing index came in with a reading of 52.9 for September, down from the 54.5 reading in August. Economists surveyed by Briefing.com had forecast the index would slip to 53.5.

Any reading above 50 indicates continued growth in the sector. The September result marked the 40th straight month the index has pointed to U.S. manufacturing growth.

The report suggested manufacturers are pulling back on hiring. The employment portion of the index fell to 49.4 from 54.0. Only 12 percent expected to increase employment, down from 19 percent who were looking to add staff a month ago. That could lower expectations for gains in the September employment report due from the Labor Department Friday.

The report was very encouraging, however, for those worried about inflation risks in the economy. The prices portion of the index plunged to a 61 reading from 73, the biggest change of any of the sub-indexes. The report found 14 percent of executives surveyed reported paying lower prices for goods purchased, up from only 4 percent who were paying less in August.

That reading could reinforce the widely-held belief that the Federal Reserve will not have to raise interest rates any further due in order to keep prices in check.

While manufacturing has been on a sustained expansion, this is the weakest growth reading since May 2005. And some sectors, particularly autos, have been hit by a sharp slowdown.

Ford Motor Co. (Charts) and the Chrysler Group unit of DaimlerChrysler (Charts) have both announced sharp cutbacks in fourth quarter production plans due to soft sales of some of their key products, particularly pickup trucks. But that is balanced by some Japanese automakers, particularly Toyota Motor (Charts), ramping up U.S. production. Toyota is preparing to open a new plant in San Antonio.

The overall manufacturing expansion could be running out of gas soon. The report showed a sharp drop in the backlog of orders, as executives reporting an increase in backlog fell to 14 percent from 19 percent in August, matched by an identical increase in those reporting a smaller backlog.

Still the report helped alleviate concerns that this report could be the first in more than three years to show a contraction in the manufacturing sector.

New worry: A hard "soft landing."

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