NEW YORK (AP) – A pair of indicators offered a mixed picture of the economy Monday as growth slowed among U.S. manufacturers while commercial construction showed surprising resilience.

Hurt by weaker auto sales and a slumping housing market, the manufacturing sector expanded in September at the slowest pace in more than a year, a trade group said.

A big gain in commercial construction spending, however, was enough to offset a decline in home building in August, the Commerce Department said. Construction spending edged up 0.3 percent to a seasonally adjusted annual rate of $1.20 trillion, the best showing in five months.

The dreary manufacturing report had a stronger effect on markets Monday than the rosier construction data: the dollar fell, Treasury bonds rallied, and stocks slipped.wo of many that the Federal Reserve will look at to gauge whether the economy is slowing too fast – a decision it must make Oct. 25, when it meets to either raise interest rates, lower them, or leave them unchanged.

The Institute for Supply Management, based in Tempe, Ariz., said its manufacturing index registered 52.9 in September, below August’s reading of 54.5 and the lowest reading since May 2005, when the index hit 51.4. Analysts had predicted a reading of 53.5.

The September figure represented the 40th consecutive month of growth. A reading of 50 or more indicates expansion, while below 50 shows decline.

It’s only a matter of months before manufacturers start reporting a contraction, said Mark Zandi, chief economist at Moody’s Economy.com.

“The good news is there is still growth, and pricing pressures are easing,” Zandi said. “The bad news is growth is slowing, it will slow more, and it’s leading to cuts in jobs.”

The reason is threefold, he said: decreasing home construction, slashed auto production, and less need to build up inventories.

Automakers General Motors Corp., Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group are cutting back production – leading auto suppliers Timken Co., Visteon Corp., BorgWarner Inc. and Lear Corp. to lower their outlooks.

The ISM’s employment index dropped to 49.4 in September from 54.0 in August. The prices paid index fell to 61.0 in September from 73.0 as commodity prices took a tumble. The new orders index remained at 54.2, but the backlog of orders index fell to 46.5.

The manufacturing sector’s strength is waning, said Dan Meckstroth, chief economist for the Manufacturers Alliance/MAPI trade group in Washington, D.C. He said a big reason was that companies wanted to rebuild their inventories after last fall’s hurricanes. Inventories are ample now, and business is slowing down.

Meanwhile, the housing market has been leveling off. The Commerce Department’s report Monday said spending on private home construction dropped 1.5 percent in August to a seasonally adjusted rate of $617 billion. The August decline followed an even bigger 2.1 percent July decrease and marked the fifth straight home building has fallen.

Aubert Martin – president and Chief Executive Officer of Siemens Energy & Automation Inc., an Atlanta-based unit of Siemens AG – said Monday’s manufacturing report reflects what he’s seen at his company, which makes electrical and electronic equipment. The auto and housing sectors are weak, he said, but industries such as primary metals, chemicals, food & beverage, petroleum, and mining have helped offset the weakness.

The Federal Reserve on Sept. 20 decided for the second straight month to leave interest rates unchanged. The Fed’s rate-raising campaign, which lasted for more than two years, was aimed at curbing inflation. Inflation worries – which eased when energy prices started falling in mid-July – reared up again last Friday, when the Commerce Department reported that core inflation rose in August.

Employment data to be released Friday should also influence the Fed’s decision, analysts said.

“The sharp decline in (the ISM) employment component indicates that manufacturers laid off workers in September,” Zandi said. “The jobs numbers on Friday will be on the soft side.”



AP Economics Writer Martin Crutsinger in Washington contributed to this report.

AP-ES-10-02-06 1542EDT


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