NEW YORK ( TheStreet)- - A small improvement in U.S. manufacturing in September came as a relief to those worried about a recession, but a third month of contraction in orders for new products indicates that anemic growth lies ahead. Manufacturing activity for September edged up to a reading of 51.6, according to the Institute for Supply Management's manufacturing index. The latest read was a bit better than economists expected. Consensus estimate was for the index to tick down to a reading of 50.5, after August's level of 50.6.
A reading below 50 indicates a contracting economy. Values for the index range from 0 to 100. The manufacturing sector has been expanding for more than two years according to the index. The new orders index within the ISM report remained at a reading of 49.6 from August after 49.2 in July. September marked the third straight month of contraction in the new orders index, following two years of growth. A reading below 50 for new orders is cause for concern because the index is a key gauge of how healthy business sentiment is. Economists were suprised that new orders strengthened in August, as they had expected panic in stock markets to hurt confidence and lead to a significant cut back in business orders at least in the short term. One survey respondent said that "overall, business is improving with a measurable uptick in orders this month" and that "part of that is due to pre-holiday season orders," while another respondent in the paper products industry said that "orders remain consistent and steady," according to the report. David Semmens, U.S. economist with Standard Charter Bank, wrote in a research not that it is "slightly worrying that new orders have not recovered but this probably reflects continued uncertainty in the market." He added that "the data is starting to turn although we don't expect too much encouragement at least the cruel summer has hopefully passed for the US." Economic data has been a mixed bag as of late. Last Friday, the Chicago Purchasing Manager's Index jumped to 60.4 in September after hitting 56.6 in August, the lowest level since November 2009. The upside surprise, economists noted, could be a sign for improvement in business activity at the national level. However, personal income slipped in August and some regional manufacturing indices showed disappointing readings in September. Manufacturing activity from regions including New York, Philadelphia and Texas either weakened or improved less than expectations. High Frequency Economics notes that "the ISM has persistently overstated the pace of economic growth in the past couple of years because it has very little to say about the state of the credit-crunched small business sector." In recent years, the ISM index has been given less weight because manufacturing makes up a smaller component of U.S. economic output compared to in the 1950s. The latest read sets the market tone ahead of Friday's jobs report from the government. Most economists are anticipating that the unemployment rate will be stuck at around 9.1% in September with some predicting that no new jobs were created for the second month in a row. Also from this morning, the Department of Commerce reported that construction spending increased by 1.4% in August. U.S. businesses spent an estimated $799.1 billion at an annual rate in August, up from a revised estimate of $788.3 billion in the prior month. The report was better than expected with eonomists predicting construction spending to drop 0.5% in August. -- Written by Chao Deng in New York. >To contact the writer of this article, click here: Chao Deng. >To follow the writer on Twitter, go to:
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