NEW YORK The nation's manufacturing sector expanded at a slower rate in September than in the previous month and at a lower pace than analysts expected suggesting there's room for the Federal Reserve to consider another rate cut later this month.
The Institute for Supply Management, a trade group based in Tempe, Ariz., said Monday that its manufacturing index registered 52.0 in September, down from 52.9 in August. It was the lowest reading since the gauge registered 50.9 last March.
Analysts had expected a reading of at least 52.5.
A reading of 50 or more indicates expansion, while below 50 indicates contraction.
"The trend is toward slower growth in manufacturing as the rate of growth in both the new orders index and production index slowed," Norbert J. Ore, chairman of the institute's survey committee, said in a statement.
Still, he added, inventories appear to be in good shape and employment increased slightly, suggesting that "overall, September looks like a good month for manufacturing."
Turbulence in the U.S. and foreign financial markets prompted the Federal Reserve on Sept. 18 to cut key interest rates for the first time in four years, starting with an aggressive half-point move.
Investors have since been monitoring economic indicators such as the ISM's manufacturing report for clues whether the Fed will cut rates further when it meets later this month to prevent the steep housing slump and credit market problems from triggering a recession.
The monthly jobs report due Friday is expected to show a slight increase in unemployment. That together with slowing manufacturing output could give the Fed room to act.
The latest ISM report indicated that 11 industries reported growth in September: petroleum and coal products; apparel and leather products; electrical equipment, appliances and components; food, beverage and tobacco products; paper products; nonmetallic mineral products; chemical products; plastics and rubber products; computer and electronic products; transportation equipment and miscellaneous manufacturing.
The index of new orders dropped to 53.4 in September from 55.3 the previous month, and the index of new export orders also declined to 54.5 in September from 57.0 in August. The production index, meanwhile, fell to 54.6 from 56.1.
Still, the employment reading edged up to 51.7 last month from 51.3 in August.
The inventory index dropped sharply, registering 41.6 in September, the lowest since January, after a reading of 45.4 in August. The institute's Ore said this suggested "the sector is apparently in excellent shape with regard to inventories."