The U.S. manufacturing sector expanded in September, shaking off three months of weakness as new orders and employment picked up, an industry report showed on Monday. The Institute for Supply Management (ISM) said its index of national factory activity rose to 51.5 from 49.6 in August, topping expectations for 49.7, according to a Reuters poll. It was the first time since May that the index has been above the 50 threshold that indicates expansion in the sector. The forward-looking new orders gauge also rose to its highest level since May at 52.3 from 47.1, while employment gained to 54.7 from 51.6. Still, the rate of growth was modest and some components remained in contraction territory. Exports continued to shrink, though the rate of contraction was not as severe with the index rising to 48.5 from 47. Similarly, production rose to 49.5 from 47.2. Construction Spending Falls A separate report showed that U.S. construction spending in August fell by the most in a year as a rebound in residential projects was offset by weak non-residential structures and public sector project outlays. Construction spending fell 0.6 percent, the largest drop since July last year, to an annual rate of $837.1 billion, the Commerce Department said. July's outlays were revised to a smaller 0.4 percent drop than the previously reported 0.9 percent fall. Economists polled by Reuters had expected construction spending to rise 0.5 percent in August. Spending on residential projects rose 0.9 percent, a reflection of the improving housing market tone. The increase, which unwound July's 0.1 percent dip, was also driven by home renovations. The housing market, one of the sluggish economy's few bright spots, is healing after collapsing in 2006. But the rise in private residential construction spending was offset by a decline in outlays for non-residential structures, which fell to the lowest since December 2011. As a result, private construction spending fell 0.5 percent in August. It was the second straight month of declines in private construction spending. Public sector construction spending fell 0.8 percent, declining for a second straight month. However, outlays on federal government projects rose 0.3 percent after two consecutive months of declines. Spending on state and local government projects fell 0.9 percent after slipping 0.3 percent in July.

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