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Washington Oct 3 (Reuters) – New orders shrank in September at the slowest rate in nearly 2-1/2 years as the central bank raised interest rates to cool demand and tame inflation.

A survey by the Institute for Supply Management (ISM) on Monday showed that manufacturing jobs contracted last month for the fourth time this year. Factory-gate inflation slowed for the sixth consecutive month.

Timothy Fiore, chairman of the ISM Manufacturing Industry Survey Committee, said: “Companies are now cooling off, cutting rents to the bottom and managing volumes with greater medium and long-term demand uncertainty.

Fiore noted that companies have not commented on large-scale layoffs, which he said “suggests that companies are confident in long-term demand.” The Fed’s tightening monetary policy activity has fueled a sharp sell-off in the stock market, raising fears of a recession next year.

“In many ways, this is the cold economy the Fed wants to see,” said Will Compernolle, senior economist at FHN Financial in New York. “However, it may reflect a consumer shift from goods to services.”

ISM’s manufacturing PMI fell to 50.9 this month, down from 52.8 in August, the lowest reading since May 2020. The decline in the index “reflects companies adjusting to the prospect of lower demand,” the ISM said. A reading of 50 or higher indicates an expansion in manufacturing for 11.9% of the U.S. economy.

Economists polled by Reuters had expected the index to fall to 52.2. Machine, Nine manufacturing industries reported growth, including transportation equipment and computer and electronic products. In addition to furniture and accessories, garment manufacturing and woodworking were among the seven industries that reported declines.

Some of the slowdown in manufacturing reflects a shift in consumption from goods to services. Last Friday, government data showed spending on durable goods rose only slightly in August, while costs for services rose.

The U.S. central bank has raised its policy interest rate since March from near zero to the current range of 3.00% to 3.25%, and last month signaled a larger increase this year.

Higher borrowing costs tend to reduce spending on big-ticket items such as household appliances and furniture, which are usually bought on credit.

Construction is not spared. A separate report from the Commerce Department on Monday showed that construction spending fell by the most in 1-1/2 years in August as single-family home starts fell 2.9%.

“It all goes back to higher borrowing costs and weaker demand,” said Jennifer Lee, senior economist at BMO Capital Markets in Toronto. “The call for a mild recession is still there.”

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury prices rose.

Orders Employment contract

Transportation equipment makers also said that “production is stable and demand may be reduced while demand softens somewhat.” “Inflation and interest rates have slowed the economy,” metal producers reported.

electrical appliances Manufacturers of accessories and parts say “business continues to be strong.”

The ISM survey’s new forward-looking orders sub-index fell to 47.1 last month, the lowest reading since May 2020 from 51.3 in August. This is the third time the index has contracted.

weak demand in Europe; Export orders fell due to a slowing Chinese economy and a stronger dollar. Backorders have also been cut, and manufacturers and their customers are nearing normal levels.

It is also a move to ease bottlenecks in the supply chain while signaling a further slowdown in the production of goods that have been lagging behind. The ISM’s measure of supplier shipments fell to 52.4, down from 55.1 in August, the lowest reading since December 2019. A reading above 50% indicates slow deliveries to factories.

Support views were mixed. electrical equipment; Utilities and component makers said “some commodities in the supply chain are beginning to stabilize, while others are still disrupting production.”

But equipment manufacturers report that “supply chain constraints remain an issue for many items,” noting that “staffing continues to be a significant issue on the manufacturing side.” Similar sentiments were echoed by computer and electronics manufacturers, who reported “shortages of talent and skilled labor are causing supply chain issues for all electronics and shortages of custom-built-to-print materials.”

As supply chains eased, inflationary pressures further eased at the factory door.

The producer price index fell to 51.7, the lowest reading since June 2020, from 52.5. The slowdown was largely driven by a pullback in commodity prices. Annual consumer and producer inflation slowed in August, raising expectations that prices will peak.

The ISM survey’s measure of factory employment fell to 48.7 from 54.2 in August. Although the index has quadrupled this year. That’s a poor estimate of manufacturing wages in the government’s closely watched jobs report, which is constantly improving.

While employment growth has slowed, labor demand remains strong. Nationwide, there were 11.2 million unfilled jobs at the end of July, or two job openings for every unemployed worker. First-time claims for unemployment benefits remain low.

Isfar Munir, an economist at Citigroup in New York, said: “Employees may be voluntarily giving up manufacturing jobs in favor of other types of work.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci.

Our Standards: Thomson Reuters Trust Principles.