Manufacturing in the US shrank at its fastest pace in 26 years last month as declining business and consumer confidence prompted companies to cut orders for new goods.

The Institute for Supply Management (ISM) reported that its index of national factory activity fell from 43.5 in September to 38.9 in October — the lowest level since September 1982 and below the consensus analyst forecast of 41. Any number below 50 signals contraction.

Robert Macintosh, chief economist at Eaton Vance in Boston, described the figures as "pretty grim".

"It means we are in a recession, it’s as simple as that. A pretty solid manufacturing recession. The question is how long or how deep is it going to be?" Mr Macintosh added.

The ISM also reported a 6.6 point decline in its new orders index in October to 32.2, the lowest reading since June 1980.

Meanwhile, its employment index registered 34.6 in October, a decrease of 7.2 points on September and the lowest reading since March 1991.

Ian Shepherdson, chief US economist at High Frequency Economics, said the report was "disastrous".

"The key issue now is just how much of this plunge in activity reflects the shock of the market meltdown and how much will be sustained," Mr Shepherdson added.

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