September Manufacturing PMI Holds Expansion at 54.5 Percent as Prices and Backlogs Surge

Economic activity in the US manufacturing sector expanded in September for the ninth consecutive month, according to the latest ISM Manufacturing PMI Report. The Manufacturing PMI registered 54.5 percent, just 0.1 percentage point below the August reading of 54.6 percent.

Demand strengthened during the month. The New Orders Index rose 1.6 percentage points to 55.3 percent, while the Backlog of Orders Index jumped 4.6 percentage points to 56.4 percent. Customers’ Inventories fell further into “too low” territory at 41.6 percent, a condition generally considered supportive of future production. New Export Orders remained in expansion at 50.9 percent, although the index declined 2.3 percentage points from August.

Output remained solid but eased from August. The Production Index registered 56.7 percent, down 1.6 percentage points, while continuing to expand for the 11th straight month. The Employment Index improved 1.5 percentage points to 52.7 percent, indicating faster workforce growth. Together, stronger orders, a rising backlog, and continued production expansion suggest that manufacturers entered the fourth quarter with healthy demand, even as the pace of output growth moderated.

The most significant change was in input costs. The Prices Index increased 6.8 percentage points to 77.9 percent, with 58.6 percent of respondents reporting higher prices. ISM attributed the increase to steel and aluminum costs, tariffs on imported goods, and higher petroleum-based product prices. No manufacturing industry reported lower raw-material prices in September. Supplier Deliveries also remained slow, with the index at 59.0 percent, while the Inventories Index fell 2 percentage points to 48.6 percent and returned to contraction.

Trade indicators remained positive but lost momentum. The Imports Index registered 51.0 percent, down 1.5 percentage points, and New Export Orders declined to 50.9 percent. Survey comments highlighted continuing concern about tariffs, geopolitical uncertainty, material and component shortages, transportation costs, and longer lead times. At the same time, respondents in several industries reported strong order levels and continued spending on productivity, efficiency, and transformation initiatives.

Twelve manufacturing industries reported growth in September. The list was led by Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; and Computer & Electronic Products. Five of the six largest manufacturing industries expanded: Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; and Chemical Products. Printing & Related Support Activities and Textile Mills were the only industries reporting contraction.

ARC Advisory Perspective

September’s results reinforce a cautiously positive outlook for US manufacturing. Demand indicators improved, backlogs expanded, and customer inventories remained low, creating a favorable foundation for continued production. Yet the sharp rise in prices, persistent supplier delivery delays, and renewed contraction in manufacturers’ inventories increase the risk that revenue growth will be accompanied by margin pressure and execution challenges.

Manufacturers should continue to strengthen supply-chain visibility, qualify alternate sources for critical materials and components, and closely monitor commodity, tariff, and transportation exposure. Investments in digital planning, supplier collaboration, production optimization, and operational resilience remain important as companies balance healthy demand against cost inflation, workforce constraints, and longer lead times.

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