By Sarah Chaney and Amara Omeokwe 

WASHINGTON -- U.S. manufacturing production fell in September, adding to evidence that slowing global growth and trade frictions are weighing on the economy.

Manufacturing output, the biggest component of industrial production, fell 0.5% in September from a month earlier, the Federal Reserve said Thursday. Production at factories was in part dragged down by a strike at General Motors, but showed broad-based fragility.

Overall industrial production, which includes output at factories, mines and utilities, dropped 0.4% in September and declined 0.1% from a year earlier, the first year-over-year decrease since 2016. Mining production pulled back, helping further drag down demand for manufactured parts

Weakness in the U.S. economy this year has largely been contained to manufacturing and business investment, but signs suggest the slowdown could be spreading. Employers are still hiring, albeit at a slower pace than in 2018. Consumer spending has been solid, but data released earlier this week showed September was a soft month for retailers.

"The risk is that the longer the weakness in the industrial complex remains in place, the greater the risk that this diffusion takes hold across other sectors," said Gregory Daco, chief U.S. economist at Oxford Economics.

On Thursday, the Commerce Department reported home building fell in September. After the figures were released, forecasting firm Macroeconomic Advisers kept its estimate of third-quarter gross domestic product growth at a 1.3% annual rate, down from a 2% annual pace in the second quarter.

Still, the U.S. economy is in growth mode.

"We have a situation where consumers generally are doing pretty well," Gus Faucher, chief economist at PNC Financial Services Group, said.

Federal Reserve policy makers cut interest rates this year with the goal of cushioning the economy against a slowdown in manufacturing and global growth. They will meet later this month, and a rate cut is seen on the table.

National Economic Council Director Larry Kudlow said Thursday the economy has faced difficulties over the past year, including "very severe Fed tightening" in 2018, as well as slower global growth and geopolitical tensions, such as Brexit.

"We're still plugging along," he said. "I'm kind of optimistic."

The U.S. is a service-oriented economy, meaning manufacturing accounts for a small share of gross domestic product. But the manufacturing sector is highly sensitive to swings in global demand, making it an important indicator of broader economic shifts.

The loss of momentum in U.S. manufacturing aligns with weakening factory output overseas.

The manufacturing output index in Germany, a key export economy in the eurozone, fell to 101.5 in August from 105.8 a year earlier, Organization for Economic Cooperation and Development figures showed.

Surveys of purchasing managers across the globe pointed to deepening declines in factory activity in September. The U.S. was not immune. The Institute for Supply Management's survey of supply-chain managers showed manufacturing activity contracted for the second straight month to its lowest level since 2009.

A faltering manufacturing sector world-wide is squeezing broader economic expansion. Global growth is expected to fall to 3% this year, according to new estimates from the International Monetary Fund, down from an estimate of 3.2% in July and a 3.8% pace as recently as 2017. The IMF attributed the sharp slowdown over the past two years primarily to rising trade barriers that have stunted manufacturing and investment around the world.

Kate Davidson contributed to this article.

Write to Sarah Chaney at sarah.chaney@wsj.com and Amara Omeokwe at amara.omeokwe@wsj.com

(END) Dow Jones Newswires

October 17, 2019 13:03 ET (17:03 GMT)

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