USIS Manufacturing PMI Narrows Slowly Amid Sharp Rise in Input Cost Pressures

US ISM Manufacturing PMI edged to 54.5 from 54.6 in September, falling short of the 55.0 consensus yet still signalling expansion. Beneath the modest headline dip lie several measures that indicate robust underlying demand: New Orders climbed from 53.7 to 55.3, and the Employment Index rose from 51.2 to 52.7. Production eased to 56.7, down from 58.3, suggesting moderate output strength. The Backlog of Orders Index surged to 56.4, while workers’ inventories slipped to 41.6, remaining in “too low” territory. Even New Export Orders stayed expansionary at 50.9, and manufacturers’ inventories tumbled to 48.6. Together these figures imply that while the headline PMI declined marginally, the core engine of manufacturing—orders, hiring, and backlogs—remained healthy.

Other internals reinforced the resilient demand picture. The Backlog of Orders Index** jumped from 51.8 to 56.4, while customarily customers’ inventories fell from 42.8 to 41.6, staying low enough to support activity. New Export Orders remained expansionary at 50.9 despite easing from 53.2, and manufacturers’ inventories dropped from 50.6 to 48.6. Taken together, stronger orders, rising backlogs and low inventory levels suggest the slight headline decline was not driven by a broad deterioration in demand.

The standout was inflation. Prices Paid surged from 71.1 to 77.9, far above the 72.0 consensus and close to March’s 78.3 reading. ISM reported raw‑material prices climbing for a 24th straight month, with 58.6% of respondents citing higher prices compared with 46.2% in August. Steel, aluminum, petroleum‑related products and tariff‑affected imports were among the sources of pressure. The September report therefore delivered a mixed headline but a distinctly firmer underlying message: demand and employment strengthened while factory input‑cost inflation accelerated sharply.

Data Summary

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Indicator Previous Current Expected ISM Manufacturing PMI 54.6 54.5 55.0 Prices Paid 71.1 77.9 72.0 New Orders 53.7 55.3 — Production 58.3 56.7 — Employment 51.2 52.7 — Supplier Deliveries 59.3 59.0 — Inventories 50.6 48.6 — Customers’ Inventories 42.8 41.6 — Backlog of Orders 51.8 56.4 — New Export Orders 53.2 50.9 — Imports 52.5 51.0 —

Key Takeaways

• ISM Manufacturing slipped from 54.6 to 54.5, just shy of the 55.0 consensus, but stayed comfortably in expansion.
• New Orders rose from 53.7 to 55.3, reflecting firmer incoming demand despite the modest headline miss.
• Employment improved to 52.7, reinforcing labor‑market resilience.
• Production decelerated to 56.7, indicating softer output growth rather than a clear slowdown.
• The Backlog of Orders surged to 56.4 while customers’ inventories slipped to 41.6, underscoring a vigorous order pipeline.
• Manufacturer inventories fell dramatically to 48.6, continuing a contractionary trend.
• The most notable surprise was Prices Paid surging to 77.9, well above the 72.0 forecast and mirroring March’s level of 78.3.
• ISM noted that raw‑material costs climbed for a 24th consecutive month, with 58.6% of firms reporting higher prices versus 46.2% last month.
• Overall, the release was **firmer underneath**—characterised by robust demand and hiring—but pressured by rapidly accelerating input‑cost inflation.

Full US ISM manufacturing release available upon request.

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