The ISM Manufacturing PMI eased to 54.5 in September, missing forecasts but holding in expansion. Beneath the headline, New Orders, Employment and Backlogs all strengthened, while the survey's Prices Paid gauge surged to 77.9 as tariffs and geopolitical tensions pushed up raw-material costs.
The Institute for Supply Management's Manufacturing PMI slipped from 54.6 to 54.5 in September, missing the 55.0 consensus but remaining above the 50 mark that separates expansion from contraction. Prices Paid, the survey's cost gauge, jumped from 71.1 to 77.9, well above the 72.0 forecast and close to March's 78.3 reading.
Orders and hiring strengthen beneath the headline
New Orders rose from 53.7 to 55.3, while the Employment Index climbed from 51.2 to 52.7. However, production slowed from 58.3 to 56.7, pointing to moderating output growth rather than a broader pullback. The Backlog of Orders jumped from 51.8 to 56.4, while customers' inventories fell to 41.6 from 42.8.
Tariffs and the Iran war drive up input costs
ISM said raw-material prices rose for a 24th consecutive month, with 58.6% of respondents reporting higher prices compared with 46.2% in August. Steel, aluminum, petroleum-related products and tariff-affected imports were among the sources of pressure.
Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said pricing volatility featured in just under half of the survey's negative comments, while 34% of respondents cited tariffs and 30% flagged the impact of the Iran war. Analysts at Vital Knowledge said the reading points to hot inflation data for the broader economy, adding: "are likely to be quite hot, with all the attendant macro fallout."
Fed policy path in focus
The report follows a separate reading this week that showed August inflation cooler than anticipated and second-quarter economic growth stronger than initially estimated. Those figures have bolstered expectations that the Federal Reserve will hold off on another rate increase in October, after the central bank lifted rates by 25 basis points last month and signaled more hikes could follow.
Businesses also pointed to a surge in orders from the semiconductor, electronics and government sectors, as firms race to secure the chips and equipment needed to build out AI data centers. That demand has strained supply chains elsewhere: machinery respondents reported longer lead times, while a tariff dispute between the U.S. and Canada has pushed up cross-border costs.
Sources: ActionForex, Investing.com
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