Bloomberg News

WASHINGTON — U.S. manufacturing contracted last month for the second straight month, brought down by the biggest drop in new orders in almost two years, an industry survey of executives showed on Monday.

Higher prices for raw materials also plagued more companies than a month earlier.

The National Association of Purchasing Management’s factory index was little changed, at 49.9, last month, compared with 49.5 in August. A reading below 50 signals a contraction.

The report, released a day before a meeting of Federal Reserve policymakers, could support a decision by the central bank to leave interest rates unchanged. The Fed has raised the overnight bank lending rate six times since June 1999 in an effort to cool demand and keep inflation in check.

Christopher Low, chief economist at First Tennessee Capital Markets in New York, said the Fed “should be happy with this further evidence of a coasting manufacturing sector and moderate” consumer demand.

Manufacturers were still under pressure from higher costs for raw materials. An index of prices paid rose to 58.1 last month, from 56.2 in August, the purchasing executives said.

The new orders index fell to 49.1 — the lowest since 47.8 in November 1998 — from 49.7 in August, the group said. The production index rose to 52.1, from 48.7. The inventories index fell to 45.9, from 47.8. The order backlog index fell to 47, from 49. The employment index rose to 50.9, from 48.2.

A separate report from the Commerce Department showed that construction spending rose 1.4% in August, the first increase in five months. The gain reflected higher spending on public housing. Spending on single-family home construction fell for the fifth straight month.

Higher interest rates and weaker exports have muzzled manufacturers, and makers of durable and nondurable goods are tightening their belts.

Nationally, factory jobs fell by 79,000 in August, the largest drop since the General Motors Corp. strike in July 1998, according to Labor Department statistics released Sept. 1. Employment figures for September will be released Friday.

Business costs were mixed. Natural gas futures rose 7% last month, to $5.19 per million British thermal units. Crude oil futures fell 8%, to $30.84 a barrel. Still, earlier price levels boosted some costs.

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