The overall economy grew for the thirty-ninth straight time, while the manufacturing sector contracted for the third consecutive month, the Institute for Supply Management reported Tuesday.

According to the ISM's monthly report on business, the ISM index dipped to 49.6 in August from 49.8 in July.

Economists polled by Thomson Reuters predicted the index would rise to 50.0.

An index reading below 50 signals a slowing economy, while a level above 50 suggests expansion. A reading of 50 shows the sector was unchanged in the month.

"The PMI registered 49.6 percent, a decrease of 0.2 percentage point from July's reading of 49.8 percent, indicating contraction in the manufacturing sector for the third consecutive month," said Bradley Holcomb, chair of the Institute of Supply Management's manufacturing business survey committee. "This is also the lowest reading for the PMI since July 2009. The New Orders Index registered 47.1 percent, a decrease of 0.9 percentage point from July, indicating contraction in new orders for the third consecutive month. The Production Index registered 47.2 percent, a decrease of 4.1 percentage points and indicating contraction in production for the first time since May 2009. The Employment Index remained in growth territory at 51.6 percent, but registered its lowest reading since November 2009 when the Employment Index registered 51 percent. The Prices Index increased 14.5 percentage points from its July reading to 54 percent. Comments from the panel generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies."

The closely watched prices paid index surged to 54.0 from 39.5. The employment index was at 51.6, down from 52.0 the prior month.

The production index decreased to 47.2 from 51.3, the new orders index fell to 47.1 from 48.0; the supplier deliveries index rose to 49.3 from 48.7; the export orders index gained to 47.0 from 46.5; and the imports index fell to 49.0 from 50.5.

The inventories index rose to 53.0 from 49.0; the customers' inventories index slid to 49.0 from 49.5; and backlog of orders dropped to 42.5 from 43.0.

Respondents' comments included:

"Internal indicators and feedback from sales channels are indicating a slowdown in demand for capital equipment." (Machinery)

"Business continues to be very solid, but there is now a slowing of incoming orders." (Fabricated Metal Products)

"Incoming orders have slowed somewhat, but indications are that there will be a stronger fourth quarter." (Plastics & Rubber Products)

"Business is slow right now. Companies seem to be holding onto their money." (Computer & Electronic Products)

"We can sense, feel and see headwinds with customer orders, especially Europe related." (Apparel, Leather & Allied Products)

"New orders and backlog remain flat." (Miscellaneous Manufacturing)

"Auto industry slowing a bit in the second half [of the year]." (Transportation Equipment)

"U.S. drought severely impacting raw materials prices." (Food, Beverage & Tobacco Products)

"Lackluster demand continues in all regions of the world, and is supporting much lower raw materials prices in the second half of 2012." (Chemical Products)


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