WASHINGTON, D.C. — More bad news for Canadian exporters of manufacturing materials to the U.S. and the carriers hauling their freight across the border.

The latest index from a key U.S. source shows that the U.S. manufacturing sector grew at a much slower pace than most economists had been expecting. Factories continued to pare their payrolls and pull back production.

The Arizona-based Institute for Supply Management’s purchasing managers index slid to 50.5 for the month. That compares to a reading of 53.9 in January. Any reading over 50 points to expansion in the U.S. manufacturing sector. The ISM purchasing managers’ index is widely viewed by economists as a leading indicator, offering a glimpse at where the world’s biggest economy is likely to head. Many were expecting the index to slip to 52 so the slide to 50.5 was an unwelcomed surprise.

The gauge’s employment, new orders and production segments were both lower during the month.

“While production remained strong, there was a significant slowing in the rate of growth of new orders,” ISM chairman Norbert Ore said in the closely watched report.

“Clearly, the weight of uncertainty brought on by a looming war with Iraq continues to grip U.S. businesses. Although underlying business fundamentals are sound, a sustained recovery in manufacturing will remain an elusive prospect until a resolution to the current Iraq crisis is found.”

The report added that higher energy prices are squeezing already thin margins and the threat of war is viewed as a major deterrent in a number of industries.

According the latest survey, the ISM’s new order index fell 7.4 percentage points to 52.3 in February, which marked the sixth consecutive month of growth for that indicator.

Of the 20 industries in the manufacturing sector, 10 reported growth in February.

The sour fourth quarter results were reflected in the fortunes of the Canadian economy in the fourth quarter. Last week Statistics Canada reported that economic activity had slowed in the fourth quarter of 2002, as real gross domestic product (GDP) advanced 0.4%, less that one-half of the pace set in the third quarter.

A 2.1% drop in exports was a major factor in the economy’s slow growth in the fourth quarter. That’s of particular concern to Canadian carriers. Motor carriers (with at least $1 million in annual revenues) for example make up to 50% of their revenues from crossborder hauls. And the crossborder market has been the only one where they have been able to get reasonable rate increases over the past five years.