updated 10/1/2004 11:50:32 AM ET 2004-10-01T15:50:32

Manufacturing activity rose in September for the 16th consecutive month, but at a more gradual pace than in August, an industry research group reported Friday.

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The Institute for Supply Management said that its manufacturing index registered 58.5 in September, down from 59 in the previous month, and slightly higher than the 58.3 reading forecast by analysts.

An ISM reading of 50 or above means that the manufacturing sector is expanding, while a figure below 50 represents a contraction. The index has been above 50 since June of last year.

“The manufacturing sector continued to grow during September, but at a slightly slower rate,” said Norbert J. Ore, chair of ISM’s manufacturing survey committee. “Both new orders and production remain strong, and employment growth has accelerated.”

Ore said manufacturers surveyed indicated generally favorable conditions, although some reported problems caused by recent hurricanes. Many companies said that they have stepped up hiring of both blue-collar and white-collar workers. Manufacturers said they are increasing their inventories, partly to hedge against price increases, but also because business continues to improve.

“This is just simply a strong report,” said Joel Naroff, of Naroff Economic Advisors in Holland, Pa. “The key is that because manufacturing is so strong, it points to some fundamental underlying strengths in the (overall) economy.”

The ISM report was not the only economics news on Friday. The Commerce Department reported that construction spending jumped in August to the highest level ever. The 0.8 percent increase to $1.02 trillion reflects continued strength in the housing market.

In yet another reading on the economy, the University of Michigan’s index of consumer confidence reportedly declined to 94.2 in September, down from 95.9 in August. That was lower than had been expected by analysts.

According to ISM, 15 manufacturing sectors reported growth, led by miscellaneous manufacturing and followed by glass, stone and aggregate, rubber and plastic products, industrial and commercial equipment and computers, tobacco and apparel. Others reporting growth were transportation and equipment, chemicals, food, wood and wood products, electronic components and equipment, printing and publishing, instruments and photographic equipment, paper and fabricated metals.

Manufacturers continue to report strong pressure on the prices they pay for materials. The ISM index measuring prices registered 76, down from 81.5 the previous month, but still indicative of higher prices.

Growth of new orders also slowed, with an index measuring them declining to 58.1 in September from 61.2 in August.

But the report also offered significant good news, particularly on jobs and production activity. ISM, based in Tempe, Ariz., said its employment index rose to 58.1 in September, up from 55.7 the previous month, with 11 sectors reporting job growth.

ISM’s production index also rose, registering 61.6 after a reading of 59.5 in August.

“September was surprisingly strong given the recent slowing of growth in new orders,” Ore said.

While the ISM report focuses on manufacturing, the group’s index also points to continued growth in the economy as a whole. An ISM reading of 42.8 or higher indicates improvement in the overall business climate, a level that has been achieved for 35 consecutive months.

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