By Xavier Fontdegloria

Growth in the U.S. manufacturing sector moderated in September to its lowest level in more than two years, continuing its downward trend of recent months as slowing demand for goods weakens factory activity.

The Institute for Supply Management said Monday that its index of U.S. manufacturing activity decreased to 50.9 in September from 52.8 in August, the lowest level since May 2020, when the economy was brought to a standstill amid the first wave of the Covid-19 pandemic.

Economists polled by The Wall Street Journal expected the index to come in at 52.0.

The index, which is based on a poll among manufacturers across the U.S., suggests factory activity barely expanded over the month as the reading came in just above the 50.0 threshold that signals growth.

The index reflects companies are adjusting to potential future lower demand after four straight months of softening new orders rates, said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

Growth in the U.S. factory activity is moderating as a slowing global economy, tighter monetary policy and the switch of spending away from goods hits the sector.

The decline in the overall ISM index was driven by significant drops in new orders and employment components.

The new orders index returned to contraction territory at 47.1, falling from 51.3 the previous month, in a sign of weakening demand for goods.

"Concerns of global economic slowdown are growing, and [we are] experiencing some customers pulling back orders," one respondent from the chemical products sector said.

The employment index fell to 48.7 from 54.2 in August, signaling that companies polled on average shed jobs. However, comments from respondents didn't mention any large-scale layoffs, Mr. Fiore said.

"This indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply-chain inventories," he said.

The production index edged up slightly to 50.6 from 50.4, suggesting marginal output growth.

Supply chains continued to normalize in September, according to the survey. The supplier deliveries index fell to 52.5 from 55.1, posting the lowest level since December 2019.

Price growth also continued to slow, a sign of abating inflation pressures. The prices index fell slightly to 51.7 from 52.5, the lowest reading since June 2020.

"Raw materials are becoming more available, and some raw materials prices are falling," said one respondent from the plastics and rubber products industry.

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

(END) Dow Jones Newswires

October 03, 2022 10:38 ET (14:38 GMT)