By Xavier Fontdegloria

Factory activity in the central Atlantic region of the U.S. contracted slightly in September for the first time since May 2020, signaling that business conditions weakened, data from a survey compiled by the Federal Reserve Bank of Richmond showed Tuesday.

The Fifth District Survey of Manufacturing Activity's composite index fell to minus three in September from nine in August, signaling a slight contraction in the manufacturing sector's activity for the first time in more than a year.

Economists polled by The Wall Street Journal expected the indicator to come in at 10.5.

The index is compiled by surveying manufacturing firms across the Fifth Federal Reserve District, which encompasses the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. Positive readings signal expansion, while negative readings indicate contraction.

The factory sector is expanding across the U.S., but factories struggle to keep up with orders due to supply-chain bottlenecks.

Two of the three component indexes which form the composite indicator--shipments and new orders--fell to contraction territory in September compared with the prior month, while employment increased, the Richmond Fed said.

Demand showed signs of faltering in September. The shipments index fell to minus one from six the previous month, while the volume of new orders index declined sharply to minus 19 from five in August.

The employment index increased to 20 in September from 18 the prior month, suggesting that many firms increased employment, the Richmond Fed said.

Manufacturers continued to see low inventories and lengthening lead times and backlogs of orders, the report said.

Goods producers in the area were optimistic that conditions will improve in the next six months. The future index for shipments increased to 40, the future new orders index was stable at 24, and expectations for employment also rose.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

September 28, 2021 10:40 ET (14:40 GMT)