TEMPE, AZ, Sept. 2 - The rate of growth in the manufacturing sector slowed in August but new orders and production remained strong. Manufacturing grew for the 15th consecutive month, said the Institute for Supply Management, based on its monthly poll of the supply chain.

The PMI, a leading measure of economic activity, was 59%, down 3 points and breaking a string of nine straight months above the 60% level. Still, the PMI was above the benchmark 50% level for the 15h straight month. New orders fell 3.5 points and production dropped 6.6 points.

Respondents focused on energy costs, price inflation in basic materials and slowing sales growth. "While the near-term outlook remains positive, both the inventories and customers' inventories indexes show signs of inventory building," ISM chairman Norbert Ore said. "Such a build may be justified if it is to meet additional sales demand, and if new orders and production remain strong."

Prices manufacturers pay were higher, driven by customer demand and energy costs. Customer inventories remain "too low," ISM said, although the rate of decline decelerated significantly during August. Backlogs rose, as did new export orders and imports.

Electronic Components and Equipment, and Industrial and Commercial Equipment and Computers were among the sectors reporting growth.

                                                April                       May                        June                      July                        August

PMI                                           62.4                        62.8                 61.1                 62.0                  59.0

New orders                             65.0                        62.8                 60.0                 64.7                  61.2

Production                               67.0                        64.8                 63.2                 66.1                  59.5

Inventories                               44.8                        49.3                        51.1                        49.9                         51.7

Customer inventories               40.5                        37.0                        39.0                        37.5                        45.5

Backlogs                                  66.5                        63.0                        58.5                        58.0                         55.0