US industry has slowest growth in 2 1/2 years in September

US manufacturing activity grew in September at the slowest pace in nearly two-and-a-half years as new orders shrunk, likely as rising interest rates to tame inflation dampened demand for goods.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI dropped to 50.9 this month, the lowest reading since May 2020, from 52.8 in August.

A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the US economy. Economists polled by Reuters projected 52.3.

Part of the slowdown in manufacturing reflects the rotation of spending from goods to services.

Government data last Friday (30) showed that spending on durable manufactured goods barely rose in August, while spending on services rose.

Since March, the Federal Reserve has raised its interest rate from near zero to the current range of 3.00% to 3.25%, and last month it signaled that more big hikes were on the way this year.

Higher borrowing costs are driving down spending on high-value items like appliances and furniture.

The ISM survey’s new orders sub-index dropped to 47.1 last month, also the lowest reading since May 2020, from 51.3 in August. It was the third time this year that the index contracted.

Backlogs are also being reduced. While this points to a further slowdown in manufacturing, it also points to easing supply chain bottlenecks.

With improved supply chains, inflation pressures at the factory gate continued to ease.

A measure of prices paid by manufacturers fell to 51.7, the lowest since June 2020 from 52.5 in August. The continued slowdown is being driven by the decline in commodity prices.