US manufacturing contracted in September for the first time since January raising fears the recovery from last year's recession may be stalling.
Factory executives said they were worried about the impact of higher energy costs and a possible US war on Iraq on business activity.
The Institute for Supply Management said its closely watched index of business conditions in factories fell in September to 49.5 from 50.5 in both August and July. The fall put the index just below the 50 mark, denoting contraction in a sector that makes up roughly one-sixth of the US economy.
Many economists were braced for a national downturn after a weak report on Chicago manufacturing yesterday and some now are forecasting the Federal Reserve will cut interest rates in the next month to rescue the economy.