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US manufacturing growth hits weakest pace since October 2016

The U.S. manufacturing sector expanded in May at its softest pace in nearly three years, mainly due to slower growth in inputs amid continued trade tensions, according to new survey data from the Institute for Supply Management.

The closely watched ISM manufacturing purchasing managers' index, or PMI, registered its lowest reading since October 2016 in May, slipping to a seasonally adjusted reading of 52.1% from 52.8% in April.

Inputs were lower in May, with the supplier deliveries index dropping by 2.6 percentage points and the inventories index falling by 2 percentage points.

Some survey respondents said ongoing and impending tariffs influenced supplier realignment or forced changes in supply chain strategy.

"Respondents expressed concern with the escalation in the U.S.-China trade standoff, but overall sentiment remained predominantly positive," said Timothy Fiore, chair of the ISM manufacturing business survey committee.

Production expanded at a slower pace in May, while growth in new orders accelerated. The backlog of orders index contracted for the first time since January 2017, declining by 6.7 percentage points to its lowest level since October 2016.

Separately, IHS Markit reported that its final U.S. manufacturing PMI fell to a seasonally adjusted reading of 50.5 in May from 52.6 in April, registering the lowest reading since September 2009.

Manufacturing output expanded at its softest pace since June 2016, and new orders declined for the first time since August 2009.

Manufacturers' confidence regarding future output growth fell to the lowest level since July 2012 amid weak demand conditions and companies' concerns over ongoing trade tensions.

"With future optimism sliding sharply lower in May, risks to near-term growth have shifted further to the downside," said IHS' chief business economist, Chris Williamson.

Readings above 50% or 50 in the surveys indicate an overall monthly increase.