Factory activity caps worst quarter in three years: Markit

U.S. manufacturing ended its worst quarter in three years in September as foreign demand for U.S. goods fell sharply, an industry survey showed on Monday.

The final Markit U.S. Manufacturing Purchasing Managers Index fell to 51.1 in September from 51.5 in August, and averaged 51.4 in the third quarter. Both the monthly and quarterly readings were the lowest in three years.

A reading above 50 indicates expansion.

The index's reading for the manufacturing sector's output fell to 50.6 from 51.9, also a three year low, while employment slipped to 51.9, the lowest reading since 51.1 in December of 2010.

Indicators suggest manufacturing production and employment could be on the verge of contracting, "meaning that the sector is now likely to be acting as a drag on the wider economy," said Chris Williamson, Markit chief economist.

The U.S. economy grew at a 1.3 percent pace between April and June, but Williamson said manufacturing weakness could contribute to an even slower rate in the third quarter.

As indicated in Markit's preliminary reading last month, manufacturers were hurt by weaker demand overseas, with new orders for exports slipping at their fastest rate in 11 months.

(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)