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While the Institute for Supply Management released a report on Thursday showing that activity in the manufacturing sector continued to expand in September, the pace of expansion unexpectedly slowed compared to the previous month.
The ISM said its index of manufacturing activity edged down to 52.6 in September from 52.9 in August, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to increase to a reading of 54.0.
A slowdown in the pace of new orders growth contributed to the pullback by the manufacturing index, with the new orders index slipping to 60.8 in September from 64.9 in August. The production index also edged down to 55.7 from 61.9 in the previous month.
The slower pace of growth in manufacturing activity in September was partly due to the end of the government's cash for clunkers program, which likely contributed to some weakness in the auto sector.
At the same time, the report showed that pace of contraction in employment in the manufacturing sector was nearly unchanged, with the employment index edging down to 46.2 in September from 46.4 in August.
The ISM also said that the inventories index jumped to 42.5 in September from 34.4 in the previous month, indicating a notable slowdown in the pace of contraction in inventories.
While the report also showed that the export index edged down to 55.0 in September from 55.5 in August, it remains near its highest level since August of 2008.
Peter Boockvar, equity strategist for Miller Tabak, said, "The guts of the data show that rebuilding inventories and a bounce in export orders have been the main driver of improvement."
"The ISM also follows a trend over the past week of numbers missing growing expectations, implying that up, up and away may just be up for now," he added.
On the inflation front, the ISM said that the prices index slipped to 63.5 in September from 65.0 in August, indicating a slowdown in the pace of price growth.
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