Report: Manufacturing Shrinks in August, Inflation Slows

American manufacturing activity dipped in August amid sluggish orders, a private research group said today.

The Institute for Supply Management said its reading for the nation's manufacturers fell to 49.9 from 50 in July. The August number met economists' prediction of a reading of 49.9, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR. A reading below 50 signals contraction.

The reading has hovered near the 50 "boom-bust" line all year.

The group's inflation index hit a six-month low, however. For the first time in months, there were many items on the list of commodities costs coming down as prices for copper, corn, fuel oil, natural gas, and soybean oil fell.

The data show that although inflation remained higher in August, at a reading of 77, it continued to back off from its June high of 91.5, the highest since 1979.

Readings for new orders, the backlog of orders, inventories, and employment all signaled contraction in the sector while readings for exports and production showed expansion.

"This continues the 2008 trend toward negligible growth or contraction each month," the chairman of ISM's manufacturing business survey committee, Norbert J. Ore, said in a statement accompanying the report.

Stocks, which were higher before the report, kept most of their gains. The Dow Jones industrial average was up 189.63 at 11,733.18. The Standard & Poor's 500 was up 13.75 at 1,296.58 and the Nasdaq Composite index was up 28.37 at 2,395.89.