Activity in the U.S. manufacturing sector unexpectedly grew at a slower rate in the month of August, according to a report released by the Institute for Supply Management on Tuesday, with the index of activity in the sector falling to its lowest level in over two years.

The ISM said its purchasing managers index dropped to 51.1 in August from 52.7 in July, although a reading above 50 indicates continued growth in the manufacturing sector.

The decrease came as a surprise to economists, who had expected the manufacturing index to inch up to a reading of 52.8.

With the unexpected decrease, the purchasing managers index fell to its lowest level since May of 2013.

Bradley Holcomb, chair of the ISM Manufacturing Business Survey Committee, said, "Comments from the panel reflect a mix of modest to strong growth depending upon the specific industry, the positive impact of lower raw materials prices, but also a continuing concern over export growth."

The unexpected drop by the headline index partly reflected a notable slowdown in growth in new orders, as the new orders index fell to 51.7 in August from 56.5 in July.

The production index also dropped to 53.6 in August from 56.0 in July, while the employment index slid to 51.2 from 52.7 in the previous month.

Reflecting recent weakness in overseas economies, the exports index also fell to 46.5 in August from 48.0 in July, pointing to a further contraction.

On the inflation front, the prices index tumbled to 39.0 in August from 44.0 in July, indicating lower raw materials prices for the tenth consecutive month.

The ISM is scheduled to release a separate report on activity in the service sector on Thursday. The index of activity in the sector is expected to drop to 58.5 in August from 60.3 in July.

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