U.S. manufacturing sector contracts for first time in 3 years, says ISM A variety of drill bits are used to create specialized metal fabricated parts for clients at the Memac Industries Inc. facility in Lancaster, Ohio. The manufacturing sector contracted for the first time since 2009. Ty Wright / Bloomberg / July 2, 2012 By Tiffany Hsu July 2, 2012, 8:12 a.m. After being touted months ago as a main driver of the recovery, the U.S. manufacturing sector contracted for the first time in nearly three years last month amid tepid demand and an unpredictable economy. A factory index calculated by the Institute for Supply Management slid to 49.7 in June from 53.5 a month earlier, the lowest reading since July 2009. Any level below 50 denotes tightening in the sector; anything above signifies growth. The stock market promptly took a nosedive after the report was released at 10 a.m. on the East Coast and is still struggling to recoup its early morning gains. New orders tumbled below the 50 mark for the first time since April 2009, reaching 47.8 in the seventh largest monthly plunge ever. Production levels continued to grow, though the rate of expansion plummeted to a three-year low of 51. Costs for raw materials continue to fall. Blame the financial crisis and vague policies in Europe, as well as slowing growth in China, which are tamping down demand for American-made goods. Exports, at 47.5, are also at three-year lows. Last month, research group Markit found that U.S. manufacturing grew at its slowest pace in nearly a year. The shift in fortunes has manufacturers watching their expenses and cautiously managing their inventory, with some potentially cutting their workforce. Major manufacturers abandoning China for U.S.? Small, midsize suppliers to benefit from U.S. manufacturing boom Economy a 'muddle' with high jobless claims, weak factory growth Follow Tiffany Hsu on Twitter and Google+