U.S. manufacturing contracted in September for the first time since January, a report said on Tuesday, raising fears that the recovery from last year’s recession may be stalling.

The September results were lower than expectations. But the number isn’t decisive enough to direct monetary policy, economists say.

“The closely watched U.S. Institute of Supply Management on manufacturing registered an index reading of 49.5 in September, which is marginally below the 50 break-even mark,” observes BMO Nesbitt Burns. “There is certainly no factory boom going on in the United States. However, the components of ISM leaned toward a neutral interpretation and do not suggest widening weakness.”

TD Bank notes that, within the overall index, the driving force among individual components was the production sub-index, which fell to 50.9 from 55.6 in August. “On a more positive note, the sub-index of new orders rose to 50.2 from 49.7 in August. It can be argued the decline in the production sub-index resulted partly from the fact that manufacturers are taking extra precautions to ensure that they do not run into another unwanted run-up in inventories such as the one last year. But undoubtedly part of the rather large decline in this component is the result both of weak demand and an increasing share of that demand being accounted for by imports.”

TD says that these numbers do, “nothing to solve the current debate about the near-term direction of Federal Reserve monetary policy. Those who believe that the Fed should lower interest rates will continue to hold that position following today’s report. And, those who believe that the Fed should leave rates where they are until next spring will remain equally adamant in their views. Thus, the policy makers will get no relief in coming weeks from examining each new piece of economic data in search of direction both for the economy and monetary policy.”

Also released today was a report showing U.S. construction spending fell 0.4% in August, greater than the expected 0.2% decline. “With July’s top-line figure revised down to show a drop of 0.1%, we have now seen four consecutive months of declining construction activity,” said RBC Financial Group economists

RBC concludes, “Taken together, these two releases suggest that essentially not much has changed for the U.S. economy. As a result, the Fed will remain cautious, concerned about the tentative nature of the recovery, but continuing to hold rates steady.”

“The behaviour of ISM reminds us of the early 1990s jobless recovery, which ultimately turned out fine. It is uncomfortable to have the ISM index slow below the key 50-level. But this development need not presage a double-dip recession,” offers BMO.