Manufacturing index shows slower growth

The pace of U.S. manufacturing growth slowed in September, as expectations for hiring and new orders slipped from their August levels.

The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its manufacturing index fell to 56.6 from 59 in August. Anything above 50 signals that manufacturing is growing.

The decline reverses slightly solid gains in the previous two months, putting the index at a level consistent with annual economic growth of "just above 3 percent," said Paul Dales, senior U.S. economist at Capital Economics. Growth that strong would outpace the 2.3-percent average of the now five-year recovery from the Great Recession.

Other economists said that the drop may reflect a broader slowdown among U.S. trading partners. Europe's ISM manufacturing index shows growth at its slowest pace in 14 months, with Germany actually contracting. Chinese factories are barely registering any growth in their ISM index, while Brazil and Australia are also experiencing contractions, noted Jennifer Lee, senior economist at BMO Capital Markets.

The comments reported by manufacturers surveyed for the index were relatively optimistic.

"We are seeing shipments up, year-over-year, in the 8- to 10-percent range for last couple of months," said a respondent from an apparel and leather firm.

Similarly, a paper products company described their outlook as "very good." Manufacturers have reported growth for the past 16 months, as the sector has helped drive the recovery.

The index's measure of new orders fell to 60 from a reading of 66.7, while the employment component fell to 54.6 from 58.1. The one upside is that customer inventories continue to remain low, suggesting that there will be continued demand from factories.

Despite the pullback in employment in the index, the ISM report listed workers as being in "short supply," along with stainless steel.

This matches separate economic reports showing an increase in job openings but sluggish hiring to fill those positions. In theory, a shortage of workers should help lift wages, which have yet to meaningfully increase.

"But so far, at least, we haven't seen indications that they're boosting wages to try to fill positions," said Ted Wieseman, an analyst at Morgan Stanley.