The ISM’s September manufacturing survey registered 52.6, down from 52.9 in August. It was the first monthly decline since December. The drop surprised economists, who were expecting an improvement to 54.0.

Every component of the index slowed, except for Supplier Deliveries and Backlog of Orders. More troubling, though, was the fact that the Employment component worsened to 46.2 from 46.4.

Nonetheless, the survey did signal that the economy is growing. If extrapolated, the September reading equates to GDP growth of 3.6%. However, the pace of recovery remains uneven, as was evident by the responses included in the survey:

“Business is picking up – lots of opportunities.” (Primary Metals)

“Business remains slow, with no sign of improvement again this month.” (Nonmetallic Mineral Products)

The ISM report comes out just as the IMF raised its projection for economic growth. The organization now expects the U.S. to increase output by 1.5% next year, slightly more than double the prediction made in July.

It is also worth noting that brokerage analysts have been raising their profit forecasts on several cyclical companies. During the past 4 weeks, the 2009 Zacks Consensus Estimate has been raised for 3M (MMM), DuPont (DD) and Packaging Corporation of America (PKG).

The upward revision in profit projections is even more widespread for 2010, with forecasts being raised on United Technologies (UTX) and Caterpillar (CAT).

Despite the bullish tone to forecasts, it is important to realize that the U.S. economy continues to rely on government support. New car dealers are suffering a severe Cash for Clunkers hangover. Taxpayers still own Citigroup (C), Bank of America (BAC) and AIG (AIG). Realtors are clamoring for an extension of the first-time homebuyers credit. And the Fed recently lengthened its program for purchasing agency-backed debt.

Therefore, while there is reason for optimism, investors should not let hope turn into euphoria. The recovery won’t feel like a recovery to many Americans. It will also be marked by an uneven pace of growth, as the September ISM survey signals.

Read the full analyst report on “MMM”
Read the full analyst report on “DD”
Read the full analyst report on “PKG”
Read the full analyst report on “UTX”
Read the full analyst report on “CAT”
Read the full analyst report on “C”
Read the full analyst report on “BAC”
Read the full analyst report on “AIG”
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