U.S. manufacturing held steady at weaker levels in September, but new orders improved and prices paid for inputs declined to a nine-month low, which together with falling interest rates bode well for a rebound in activity in the coming months.

The Institute for Supply Management (ISM) said on Tuesday its manufacturing PMI was unchanged at 47.2 last month. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3% of the economy.

It was the sixth consecutive month that the PMI remained below the 50 threshold, but above the 42.5 level that the ISM said over time generally indicates an expansion of the overall economy. The survey has, however, exaggerated the weakness in manufacturing, with the so-called hard data such as factory production and durable goods orders showing the sector largely moving sideways.

Gross domestic product data last week showed manufacturing output rising at a 2.6% annualized rate in the second quarter, an acceleration from the 0.2% pace posted in the January-March quarter. Further gains are likely after the Federal Reserve cut interest rates last month for the first time since 2020.

The U.S. central bank is expected to deliver two more rate cuts in November and December.

The ISM survey's forward-looking new orders sub-index increased to 46.1 last month from 44.6 in August. Output eyed a recovery, with the production sub-index rising to 49.8 from 44.8 in August.

Manufacturers faced low cost pressures, though a port strike by members of the International Longshoremen's Association that began on Tuesday could snarl the supply chains and boost prices for inputs.

The survey's measure of prices paid by manufacturers decreased to 48.3, the lowest level since December 2023, from 54.0 in August. Its gauge of supplier deliveries increased to 52.2 from 50.5 in the prior month. A reading above 50 indicates slower deliveries.

The factory employment slump deepened, which could pose a downside risk to manufacturing payrolls in September. The survey's manufacturing employment measure dropped to 43.9 from 46.0 in August.

The index has been in contraction territory for four straight months, with respondents in the ISM survey reporting their companies were "continuing to reduce head counts through layoffs, attrition and hiring freezes." A Reuters survey showed economists expected manufacturing payrolls to drop by 5,000 jobs in September after decreasing 24,000 in August. The poll estimated overall nonfarm payrolls to have increased by 140,000 jobs last month after rising 142,000 in August. The government's closely watched employment report is scheduled to be published on Friday.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)