Factory production growth lows
The Institute for Supply Management said its index of manufacturing activity was 52.0 in September, down from 52.9 in August and the lowest since March. Numbers above 50 suggest an expansion in manufacturing activity; those below suggest contraction.
The drop in September marked the third consecutive monthly decline.
"The trend is definitely toward slower growth in manufacturing," says Norbert Ore, chairman of ISM's manufacturing committee. But manufacturing activity is "still at very respectable levels," suggesting the problems in the mortgage and housing markets have had only a limited impact on factories, Ore says.
Gauges of growth in orders, production and exports all slowed in September while hiring picked up.
Factory "production is still rising, demand is decent, and firms are hiring," Naroff Economic Advisors President Joel Naroff said in a note to clients. "Those are all indications that the economy has not faltered."
And in an especially encouraging sign, the index of prices paid for raw materials fell for the fifth consecutive month to the lowest level since February. That suggests that cost pressures for manufacturers are abating, potentially leading to a decline in inflationary pressures economywide.
"Policymakers may find solace in the latest dip in prices paid as it suggests that the threat of pass-through (of higher costs to consumers) is easing," Moody's Economy.com economist Ryan Sweet says.
While inflation indicators are always closely watched, such price gauges are receiving particular attention as analysts are trying to judge if Federal Reserve Chairman Ben Bernanke and his colleagues will cut its target for interest rates again when they meet at the end of this month. A decline in price pressures gives the Fed more room to cut interest rates as the concern of igniting inflation is diminished.
The Fed last month cut interest rates by a dramatic half-percentage point in a move to aid a slowing economy and alleviate a tightening in credit markets. Investors in the futures market, where participants bet on Fed moves, are expecting central bankers to cut their target for short-term interest rates by a quarter-percentage point to 4.5 percent at the conclusion of their meeting Oct. 31, according to Action Economics.
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