ISM: Manufacturing Up Slightly in September

On October 1, ISM issued its monthly report and said the Manufacturing PMI registered 49.1% in September, a 0.4-percentage point increase compared to the reading of 48.7% recorded in August.

"Looking at the manufacturing economy, 67% of the sector's gross domestic product (GDP) contracted in September, down from 69% in August,” said Susan Spence, chair of the Institute for Supply Management Manufacturing Business Survey Committee."Of the six largest manufacturing industries, only one (Petroleum & Coal Products) expanded in September, compared to two in August."

And the overall economy continued in expansion for the 65th month after one month of contraction in April 2020.

Matthew Martin, senior economist at Oxford Economics, offered the following analysis.on the ISM manufacturing index:

Lower interest rates, reduced policy uncertainty, and a fiscal boost from the One Big Beautiful Bill will take time to filter through the manufacturing sector. For now, manufacturing is mired by low customer orders and higher input costs as suppliers and customers decide who will bear the brunt of tariffs. The consecutive increases in the ISM manufacturing index are a positive sign, but a sustainable push above the 50 threshold is still some way off.

Given the weak demand landscape, firms are concentrated on managing head count and reducing overhead costs. Manufacturing employment as defined by the BLS has declined the last four months, and this trend is likely to continue when the data is eventually released.

Tariffs are still putting upward pressure on input costs according to anecdotes from the survey, yet the prices index recorded a second consecutive decline. While this may indicate the peak impact may have passed, sectoral tariffs recently announced could send this measure north again, particularly if supply-chain disruptions intensify.

Index numbers are as follows:

Supplier Deliveries Index indicated slower delivery performance for the second consecutive month after one month in 'faster' territory, which was preceded by seven consecutive months in 'slower' territory. The reading of 52.6% is up 1.3 percentage points from the 51.3 % recorded in August

New Export Orders Index reading of 43% is 4.6 percentage points lower than the reading of 47.6% registered in August.

Imports Index registered 44.7%, 1.3 percentage points lower or than August's reading of 46%.

New Orders Index contracted in September following one month of growth; the figure of 48.9% is 2.5 percentage points lower than the 51.4% recorded in August.

Production Index registered 51%, which is 3.2 percentage points higher than August's figure of 47.8%.

Prices Index remained in expansion, registering 61.9%, down 1.8 percentage points compared to the reading of 63.7% reported in August.

Backlog of Orders Index registered 46.2%, up 1.5 percentage points compared to the 44.7% recorded in August.

Employment Index registered 45.3%, up 1.5 percentage points from August's figure of 43.8%.

What Respondents are Saying

• "Business continues to be severely depressed. Profits are down and extreme taxes (tariffs) are being shouldered by all companies in our space. We have increased price pressures both to our inputs and customer outputs as companies are starting to pass on tariffs via surcharges, raising prices up to 20 percent. The addition of the derivative steel and aluminum tariffs in the middle of the month — with no announcement — was devastating. Interest-rate lowering or the 'One Big Beautiful Bill' will not impact our business, as all capital projects are on hold until there is some level of certainty and customers start to place orders for new equipment again. We believe we are in a stagflation period where prices are up but orders are down due to tariff policy, and again, customers are not willing to pay the higher prices, so they are just not buying. Continuing to find ways to reduce overhead, which means letting go of experienced workers." (Transportation Equipment)

• "The tariffs are still causing issues with imported goods into the U.S. In addition to the cost concerns, product is being held up at borders due to documentation issues. The inflation issues continue; low volumes are a constant concern. The European region is not improving as we had expected, causing further concern for long-term business viability." (Chemical Products)

• "Ongoing macroeconomic conditions highlighted by interest-rate management and tariffs continue to impact customer purchasing decisions, resulting in subdued production rates and growing cost concerns on direct material and operations." (Machinery)

• "Lead times have slightly normalized, but tariffs continue to drive additional spend." (Petroleum & Coal Products)

• "Customer orders are depressed for heavy machinery because tariffs are so impactful on high-end capital equipment. Revenue expectations are flat for the rest of 2025, with no outlook to improve in 2026." (Electrical Equipment, Appliances & Components)

• "Current business conditions remain volatile, with geopolitical tensions, weather disruptions and shifting trade policies driving uncertainty in agricultural commodities. Oils remain sensitive to biofuel demand and global production. Inflation and evolving consumer trends add further complexity. To manage this, we are emphasizing supplier diversification, long-term contracts and formula-based pricing to balance cost stability with flexibility." (Food, Beverage & Tobacco Products)

• "The semiconductor industry is being impacted by high tariff prices on parts from Korea, China and Europe. Our industry is at a low point right now as we race to get new nanotechnology in the U.S." (Computer & Electronic Products)

• "Business is slowing down. Order books are softening as customers push orders out. Seems to be stemming from concerns about the direction of the U.S. economy." (Plastics & Rubber Products)

• "Tariffs still affecting vast amounts of increases in hardware, Al (artificial intelligence) and stainless steel. MRO (maintenance, repair and operating) products have continually increased, and the slowdown in agriculture has had stark impacts on bottom lines for raw materials." (Fabricated Metal Products)

• "Steel tariffs are killing us." (Miscellaneous Manufacturing)