The December results were weaker than the 50.9 expected by analysts polled by Thomson/IFR Markets. Last month was the first that manufacturing has failed to grow since January 2007, when the index was 49.3. It has been four years and eight months since the index was lower than in December; it hit 46.4 in April 2003.

The chairman of ISM's manufacturing business survey committee, Norbert Ore, said he expected a couple months of either contraction or very slow growth before a rebound. He said supply executives reported that slower demand was more of a problem than excess inventory. The survey found weakness in new orders and production, which reversed in December after reporting growth in November.

"It's a little too soon to say whether this is a trend of continued contraction or whether it's a soft patch, then things pick up after that," Ore said.

Nomura chief economist David Resler said December results can sometimes be skewed by seasonal variation in orders, so January will be very closely watched to see whether the sector will keep falling.

"I think the troubling thing is not just that it was so low, and it is at a level that is typically breached only in recession, but that it's continuing in a downward trend," Resler said, noting that the index has been dropping since June.

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