According to the latest Institute of Supply Management “Report On Business PMI” (price manufacturing index), the manufacturing sector significantly declined in September, marking the greatest contraction since the days immediately following the 9/11 attacks.

"The PMI indicates a significantly faster rate of decline in manufacturing during September, marking a departure from the 2008 trend toward negligible growth or contraction each month,” said ISM chairman Norbert Ore. “This is the lowest level for the PMI since October 2001. This month's report is showing prices rising at a much slower rate, as the Prices Index fell to the lowest level in 21 months."

While the overall economy grew for the 83rd consecutive month, the PMI for September was recorded at 43.5%. A PMI reading under 50% signifies the manufacturing segment is generally contracting.

In addition, ISM’s “New Orders Index” registered a score of 38.8%--with 51.6% signifying an increase in the Census Bureau’s series on manufacturing orders. Of the 17 industries tracked by ISM, only four-- Paper Products, Petroleum & Coal Products, Miscellaneous Manufacturing and Food, Beverage & Tobacco Products—reported increases for the month.

Production and inventories have also taken a hit. ISM’s “Production Index” shows that only five of 18 industries reported production increases in September, while ISM said that only two out of 12 industries reported higher inventories.

The weak economy stretches across the world, according to JPMorgan’s “Global All-Industry Output Index,” which said that its PMI remained below the neutral value of 50.0 throughout the entire third quarter of 2008. That marks the first quarter of continuous contraction since the fourth quarter of 2001.

“There was a marked disparity between the performances of the manufacturing and service sectors,” the report said. “Although conditions in the service sector remained muted – with activity stagnating and new business falling slightly – this was positive in comparison to the marked retrenchments signaled for manufacturing output and new orders. The contractions signaled for both of these variables were the sharpest since the immediate aftermath of 9/11.”

J.P. Morgan added that that while the contractions in outputs were the largest since February 2001, the month-on-month declines in the levels of the US PMI, output and new orders indexes were actually the largest drops since January 1984.

"The latest PMI readings confirmed that the global economy entered a slower growth phase in Q3 2008, with the output index currently consistent with near 1.0% growth of global GDP,” said David Hensley, director of global economics coordination at JPMorgan. “With the forward-looking new orders index still firmly in contraction territory, and the credit shock now reverberating through activity, the global economy appears poised to slide into recession."