US manufacturing growth slowed to the lowest level since the official end of the recession in 2009 in the latest sign of stagnation in the world’s largest economy.

The Institute for Supply Management’s purchasing managers’ index slid to 50.9 in July from 55.3 in June, a sharper fall than economists had expected. Readings above 50 signal expansion in the sector.

The US figures followed reports of slowing factory activity in China and India that raised questions over the future of those two fast-growing economies.

Monday’s figures also came on the heels of dismal growth data released on Friday, which showed that the US economy grew at an annualised rate of 1.3 per cent in the second quarter and that first-quarter growth was revised down to only 0.4 per cent from 1.9 per cent. Manufacturing has been the engine driving US economic growth in the wake of the recession, and analysts said that the poor ISM figures reflected slowdown in the wider economy seen this year.

“These are the types of numbers that are consistent with what we saw with the GDP numbers,” said Keith Hembre, chief economist at Nuveen Asset Management. “Absent a governmental shock, we would dredge forward with this stagnant economic performance. We’ll be mired in this 1 to 2 per cent [growth] environment we have been in.”

US markets fell sharply on the news, after gaining on the US debt agreement. The S&P 500 index was down 0.6 per cent to 1,284.66 in morning trading.

The ISM report showed new orders contracted for the first time since June 2009, falling to 49.2 from 51.6, while production growth slowed to 52.3 from 54.5. Concerns over demand likely spurred businesses to slow down on stockpiling, and inventories contracted after expanding in June.

Exports and imports both grew faster, however, and several executives surveyed by the ISM noted that export demand remained “strong”. But the survey’s employment index fell more than six points to 53.5, the lowest level in 19 months.

A separate, more upbeat, report on construction spending from the commerce department did little to shake off markets’ gloom. Construction spending rose 0.2 per cent to $772.3bn in June, beating forecasts of a 0.1 per cent rise, and May’s originally reported 0.6 per cent decline was revised to a 0.3 per cent increase.

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