By John S. McClenahen There was one slightly encouraging statistic in the latest batch of U.S. economic data. The new orders component of the Institute for Supply Management's (ISM) manufacturing index moved into growth territory in September from August's contraction. But that was not enough to keep the overall index on the positive side. Registering just 49.5% on ISM's scale of activity, U.S. manufacturing contracted in September following seven consecutive months of growth. It was 50.5% in August. "Stagnant and sluggish are apt descriptions for manufacturing at this time," says Norbert J. Ore, chairperson of ISM's manufacturing business survey committee and group director of strategic sourcing and procurement at Georgia-Pacific Corp. "After a strong first quarter [in 2002], the manufacturing sector has softened significantly." September's manufacturing index mark of 49.5% was a significant 1.5 percentage points below economists' consensus projection of 51%, which would have signaled continued growth. Nevertheless, "the index is not signaling recession and is probably not weak enough to trigger new [Federal Reserve] easing," asserts Maury Harris, chief U.S. economist at UBS Warburg LLC, New York. "But the index, by sinking slowly, is signaling a loss of momentum that may reflect the toll [being] exacted on the economy by rising oil prices, sinking equity values and widespread war-related uncertainty." Construction, another major element of U.S. industrial activity, also disappointed in the latest round of data. Although economists generally had expected construction to fall back 0.2% in August, the actual decline was twice that, a 0.4% decrease to a seasonally adjusted annual rate of $829.8 billion, reports the U.S. Commerce Department. These data mean that this Friday's U.S. employment report, which is widely expected to show minimal job growth in September and a rise in the jobless rate to 5.9%, will get even closer-than-usual scrutiny. A case for the Federal Open Market Committee to cut the influential federal funds rate from its current 1.75% to stimulate the economy seems to be taking shape. Indeed, Merrill Lynch's chief economist, Bruce Steinberg, expects Alan Greenspan and his colleagues to reduce the funds rate twice more this year, dropping it to 1.25% by year-end.