U.S. Manufacturing Expands for Ninth Month as ISM PMI Holds at 54.5

U.S. manufacturing expanded for a ninth consecutive month in September, with the Institute for Supply Management’s Manufacturing PMI registering 54.5. The reading was nearly unchanged from 54.6 in August and remained comfortably above the 50 level that generally separates expansion from contraction in the factory sector.

The headline index was steady, but the components moved in different directions. New orders strengthened, employment improved and backlogs grew faster, while production growth cooled and inventories moved back below 50. The most pronounced change came from prices paid by manufacturers, which rose sharply during the month.

ISM’s September Manufacturing PMI report put the New Orders Index at 55.3, up 1.6 percentage points from August, and the Employment Index at 52.7, up 1.5 points. The Production Index remained strong at 56.7 even after falling 1.6 points. The overall PMI has now stayed above 50 every month since January, following 10 consecutive months of contraction through the end of 2025.

Demand strengthened even as production growth cooled

The September mix suggests that incoming demand improved faster than factory output. New orders expanded for the ninth straight month, while the Backlog of Orders Index climbed 4.6 points to 56.4. Customers’ inventories fell to 41.6, remaining in the range ISM describes as too low, a condition that can support future production if buyers need to rebuild stocks.

Production itself expanded for an 11th consecutive month, but its index eased to 56.7 from 58.3. That is still a relatively firm reading for a diffusion index, which measures the breadth and direction of month-to-month change rather than the percentage change in physical factory output. A PMI reading of 54.5 therefore does not mean manufacturing production rose 4.5% or 54.5%; it signals that expansion was more prevalent than contraction across the survey panel.

The breadth across industries also remained positive. Twelve of the 18 manufacturing industries tracked by ISM reported growth in September, while two reported contraction. Five of the six largest industries expanded, including computer and electronic products, food, beverage and tobacco products, transportation equipment, machinery and chemical products. That was a broader picture than August, when ISM said 22% of manufacturing-sector GDP was associated with industries in contraction; in September the share fell to 2%.

Employment improved for a third month in expansion territory. ISM’s employment gauge rose to 52.7, although the industry detail was mixed: eight industries reported higher employment and six reported declines. The survey therefore points to better hiring conditions in aggregate without suggesting that factory labor demand strengthened uniformly across the sector.

Prices and delivery times remain the main pressure points

Input costs were the clearest source of strain in September. ISM’s Prices Index jumped 6.8 points to 77.9, the highest reading in the current report’s recent monthly sequence and close to its March level. Raw material prices have now been increasing for 24 straight months under ISM’s measure, and 58.6% of respondents reported paying higher prices in September.

ISM attributed the price pressure to higher steel and aluminum costs, tariffs on imported goods and petroleum-based products affected by the Middle East conflict. Respondent commentary was also less upbeat than the headline PMI: ISM said negative comments outnumbered positive ones, with pricing volatility, tariffs and supply-chain lead times among the recurring concerns. Those comments are qualitative survey evidence rather than a direct measure of economy-wide inflation, but they reinforce the sharp rise in the prices component.

Supplier deliveries remained slow, with the Supplier Deliveries Index at 59.0. In ISM’s methodology, this index works in reverse from most of the others: readings above 50 indicate slower deliveries. The measure has been in slower-delivery territory for 10 consecutive months, pointing to continuing pressure on supply chains even as the pace eased slightly from August.

Inventories moved the other way. The Inventories Index fell 2 points to 48.6, returning to contraction after three months of growth. Imports stayed in expansion at 51.0 but slowed from August, while new export orders held just above the line at 50.9. Together, those readings show a factory sector with healthy domestic demand signals but less momentum in trade flows and stock accumulation.

The survey is stronger than the latest hard output data

The ISM report is a timely survey of purchasing and supply executives, so it should not be read as a direct substitute for measured factory production. The latest Federal Reserve industrial production report, released Sept. 18 and covering August, showed manufacturing output declining 0.3% after seven consecutive monthly increases. Manufacturing capacity utilization also fell 0.3 percentage point to 75.7%, which was 2.5 points below its long-run average.

The two indicators are not contradictory because they measure different things and cover different periods. ISM asks companies whether conditions such as orders, production, hiring, deliveries and inventories are better, the same or worse than the prior month, then combines five diffusion indexes into the headline PMI. The Federal Reserve estimates actual industrial output using physical product data and production-worker hours across industries. September’s ISM survey therefore offers an early directional signal for a month that is not yet covered by the Fed’s output figures.

The September PMI was also stronger than its own recent average. ISM reported a 12-month average of 52.3, with a high of 55.6 in July and a low of 47.9 in December 2025. At 54.5, September remained closer to the high end of that range even though the composite was essentially flat from August.

ISM said a Manufacturing PMI above 47.5 over time has historically been consistent with expansion in the overall economy, and it estimated that September’s 54.5 reading corresponded to a 2.4% annualized increase in real GDP based on the historical relationship. That is a model-based association rather than a GDP forecast or an official government growth estimate.

The next ISM Manufacturing PMI report, covering October, is scheduled for Nov. 2. That release will show whether the stronger order and employment readings carried into the fourth quarter and whether the September jump in input-price pressure persisted.