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US industrial activity grew at the slowest pace in 2 1/2 years in September, the ISM said

BMW plant in Greer, USA

WASHINGTON (Reuters) – U.S. manufacturing activity grew at the slowest pace in nearly two and a half years in September as new orders shrank, interest rates rose to control inflation and demand for goods weakened.

The Institute for Supply Management (ISM) on Monday said its manufacturing PMI fell to 50.9 this month, after May 2020’s 52.8 in August.

A reading above 50 indicates an expansion in manufacturing, which is 11.9% of the US economy. Economists polled by Reuters had forecast 52.3.

Part of the slowdown in manufacturing reflects a shift in spending from goods to services. Last Friday, government data showed that spending on durable goods rose barely 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 there would be even bigger hikes this year.

Higher borrowing costs reduce spending on high-value items such as appliances and furniture.

The ISM survey’s new orders sub-index fell to 47.1 last month, the lowest reading since May 2020 when it read 51.3 in August. This is the third time the index has contracted this year. Dues are also reduced. While this points to a further slowdown in manufacturing, it also points to an easing of supply chain constraints.

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

The volume of prices paid by producers fell to 51.7, which was 52.5 in August after June 2020. A persistent recession is driven by falling commodity prices.

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(Reporting by Lucia Muthikani)