Manufacturing expanded in September at the slowest pace in 10 months, underscoring the Federal Reserve’s forecast of “modest” U.S. growth in coming months. The Institute for Supply Management’s factory index dropped to 54.4 from 56.3 in August, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth and economists forecast a decline to 54.5, according to the median estimate in a Bloomberg News survey. Measures of orders and production fell to the lowest level since June 2009. Companies such as Cisco Systems Inc. are seeing signs of slower growth and limited hiring in the U.S. even as manufacturers benefit from improving overseas markets. Noting smaller gains in business investment, the Fed last week said it stands ready to do more to ensure the world’s largest economy keeps growing. “The manufacturing sector is growing at a more subdued but still-positive rate,” Paul Dales, a U.S. economist at Capital Economics Ltd. in Toronto, said before the report. “It’s still positive growth but not as splendid as a few months ago.” Stocks maintained gains after the report and separate figures showing consumer confidence was stronger than forecast in September. The Standard & Poor’s 500 Index rose 0.7 percent to 1,149.25 at 10:17 a.m. in New York. The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 68.2 from an August reading of 66.6. The September index exceeded the 67 median forecast in a Bloomberg survey. Estimates in the Bloomberg survey of 83 economists ranged from 51.5 to 57. Spending, Income Earlier, the Commerce Department reported personal spending increased 0.4 percent in August for a second month. Incomes rose 0.5 percent, the most this year. China’s manufacturing expanded in September at the fastest pace in four months, a separate report showed today. The purchasing managers’ index rose to 53.8 from an August reading of 51.7, China’s logistics federation and statistics bureau said in an e-mail. Growth in European manufacturing slowed. A gauge of manufacturing in the 16-nation euro region declined to 53.7 in September from 55.1 the previous month, London-based Markit Economics said today. After the worst recession since the 1930s, the U.S. economic recovery that began in June 2009 has been led by manufacturing as exports climbed, business investment improved and inventories were replenished. The rebuilding of stockpiles has since slowed. Orders, Production The ISM’s U.S. new orders measure declined to 51.1 from 53.1, while the production index dropped to 56.5 from 59.9. The employment gauge fell to 56.5 in September, the lowest in six months, from 60.4, and the index of export orders dropped to 54.5, the lowest this year. The measure of orders waiting to be filled fell to 46.5 from 51.5 and the index of prices paid jumped to 70.5 from 61.5. The inventory index increased to 55.6 in September, the highest since July 1984. A figure higher than 50 means manufacturers increased stockpiles. Fed Statement “The pace of economic recovery is likely to be modest in the near term,” the Fed said Sept. 21 after its policy meeting. “Business spending on equipment and software is rising, though less rapidly than earlier in the year.” Fed Bank of New York President William Dudley said today that the outlook for employment is “unacceptable” and that the central bank has options to add stimulus without major drawbacks. The jobless rate is projected to average at least 9 percent through 2011, according to a Bloomberg survey last month. “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long,” Dudley said in a speech to business journalists in New York. To help spur employment and as his approval rating suffers, President Barack Obama last month proposed a package of $180 billion in business tax breaks and infrastructure spending. The economy is a top issue for voters in the November congressional elections, and polls show the public is increasingly skeptical of Obama’s performance. Cisco Systems Cisco Chief Executive Officer John Chambers said last week in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan” that economic conditions appeared “a little bit bumpy.” The San Jose, California-based company “saw the market returning to more normal growth rates,” he said. Most chief executives Cisco talks to are projecting U.S. growth of 2 percent or less, he said, “and that means they’ll probably spend appropriately and also hire appropriately.” At the same time, “Asia’s still going strong and Europe is holding up remarkably well,” Chambers said. Cisco is the world’s largest maker of networking equipment. Automakers including Ford Motor Co. are among manufacturers that see sales picking up while holding below pre-recession levels. “The auto business is pretty steady and coming back up a little bit,” Ford Chief Executive Officer Alan Mulally told reporters in Ann Arbor, Michigan, on Sept. 17. The economy “is coming back slower than past recessions.” To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net.

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