The Institute for Supply Management said its index of national factory activity dropped 1.5 points to a reading of 59.8 in September from 61.3 in August, which was the highest since May 2004.

The ISM continued to describe demand as remaining "robust." The ISM also noted that "the nation's employment resource and supply chains continued to struggle, but to a lesser degree." It said factories remained "overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations."

Washington last week slapped tariffs on USD 200 billion worth of Chinese goods, with Beijing retaliating with duties on USD 60 billion worth of U.S. products. The United States and China had already imposed tariffs on USD 50 billion worth of each other's goods.

The ISM's new orders sub-index fell to a reading of 61.8 last month from 65.1 in August. The survey's factory employment measure rose to 58.8, the highest reading since February, from 58.5 in August.

This suggests manufacturing payrolls probably rebounded in September after falling in August for the first time in 13 months. The government will publish September's employment report on Friday.

The ISM's supplier deliveries index fell to a reading of 61.1 last month, pointing to some easing in bottlenecks in the supply chain, from 64.5 in August. It hit a 14-year high of 68.2 in June. The ISM's prices paid measure fell to a 10-month low in September.

Growth estimates for the third quarter are above a 3.0% annualized rate. The economy grew at a 4.2% pace in the second quarter.

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