U.S. Manufacturing Activity Strengthens in October as ISM Index Rises to 55.5

U.S. manufacturing activity strengthened in October, with the Institute for Supply Management’s manufacturing PMI rising to 55.5 from 54.5 in September. The one-point increase marked a tenth consecutive month of expansion for the factory sector, as stronger production and a return to inventory growth helped lift the overall index.

The improvement was not uniform. New orders grew only slightly faster, factory hiring lost some momentum and manufacturers continued to report steep increases in the cost of materials. Those differences matter because the headline PMI measures the direction and breadth of business conditions, not a percentage increase in the value of factory output.

The October survey released by ISM on November 2 showed that all five components of the composite index were in expansion territory. Four improved from September; employment was the exception. The reading also returned close to July’s 55.6, after two softer months in August and September.

Production Accelerates While New Orders Edge Higher

Factory production provided the clearest sign of stronger activity. ISM’s Production Index rose 2.3 points to 59.0 from 56.7, its highest reading since November 2021. Output has now expanded for 12 consecutive months, according to the survey, giving October’s headline increase more support than a modest movement in orders alone would have provided.

Demand was still growing, but the advance was smaller. The New Orders Index increased to 55.5 from 55.3, extending its expansion streak to ten months. Four of the six largest manufacturing industries reported higher new orders: machinery, computer and electronic products, transportation equipment, and chemicals. A firm level of incoming work, rather than a sharp month-to-month surge, was the picture presented by those figures.

Inventories added to the improvement. ISM’s index of manufacturers’ own stocks moved back above the 50 expansion threshold, climbing to 51.4 from 48.6. That reversal removed one source of drag from the composite PMI. Stockbuilding can help keep factories operating, although the survey does not establish whether every company was replenishing depleted materials or preparing for additional sales.

The inventory picture further down the supply chain looked different. Customers’ Inventories stood at 41.6, unchanged from September and in territory ISM classifies as too low. That has been the assessment for 25 consecutive months. Low stocks at customers may leave room for additional orders, but they are not a guarantee that such demand will materialize.

Across industries, 12 of the 18 manufacturing groups tracked by ISM reported growth, while three contracted. Five of the six largest industries expanded, including transportation equipment, machinery and computer and electronic products. This breadth suggests the improvement was not confined to one factory niche, even though individual respondents described notably different business conditions.

For example, survey comments from machinery companies pointed to demand tied to data centers, defense-related work and replacement of municipal infrastructure. Other respondents described customers delaying purchases or limiting commitments because of costs and uncertainty. These observations illustrate the unevenness behind the national index rather than establishing a single cause for its October increase.

Materials Inflation Remains a Pressure Point

The prices component offered a more complicated signal. ISM’s Prices Index fell to 75.2 from 77.9, indicating that the pace of reported price increases moderated. It nevertheless remained well above 50, the level separating broadly rising from falling input prices, and marked the 25th consecutive month of higher raw-material costs in the survey.

A lower prices index should not be mistaken for factories paying less overall. Some 53.1% of respondents reported paying higher prices in October, compared with 58.6% in September. Only 2.8% reported lower prices, the same share as the previous month. The change points to less widespread cost increases, not a reversal of the accumulated price pressures on producers.

ISM attributed persistent pressure in part to steel and aluminum, tariffs on imported goods and petroleum-based products. Its commodities list also identified higher prices for electronic components, copper, semiconductors and several forms of steel. Those categories matter to a wide range of manufacturers, including producers of machinery and electronics that were among the stronger industries in October.

Suppliers were still taking longer to deliver goods. The Supplier Deliveries Index edged up to 59.1 from 59.0, indicating slower deliveries for an eleventh consecutive month. ISM treats slower delivery times as a positive contributor to its composite PMI, since they can accompany stronger demand. In an environment of material shortages and cost volatility, however, delays can also expose constraints that make it harder for factories to complete orders.

The survey listed short supplies of electrical and electronic components, memory, printed circuit boards and some metals. Average purchasing lead times for production materials increased to 87 days from 84 in September. That shift was small, but it provides a practical measure of why manufacturers may still face planning problems even when overall factory activity is expanding.

Order backlogs remained in growth territory, though their pace eased. The Backlog of Orders Index declined to 54.6 from 56.4. Taken with the stronger production reading, the figure is consistent with factories increasing output while the stock of unfilled work continued to rise more slowly. The survey does not measure how many orders or dollars those index changes represent.

Hiring, Export Orders and Business Sentiment Diverge

Manufacturing employment was the one component of the headline PMI that moved lower. ISM’s Employment Index slipped to 52.4 from 52.7. Both readings were above the threshold for expansion, and October was the fourth consecutive month of growth, but the latest figure indicates a slight loss of momentum rather than an acceleration in hiring.

Eight of the 18 industry groups reported rising employment, while five reported declines. Among the largest industries, machinery, transportation equipment, computer and electronic products, and food and beverage producers reported higher staffing levels. The ISM measure reflects the direction of employment changes reported by purchasing executives; it is not a count of payroll jobs or a substitute for official employment statistics.

International demand offered modest support at the national level. The New Export Orders Index rose to 51.2 from 50.9, its fourth straight month in expansion territory. Yet only two industries reported growth in export orders, while nine reported decreases and seven were unchanged. The positive national reading therefore should not be read as evidence of a broad export boom.

Imports strengthened more visibly. That index increased to 52.9 from 51.0, with higher imports reported in seven manufacturing industries. More incoming goods may reflect purchasing to support production, though the survey does not identify a uniform reason for the increase. The stronger import reading also sits alongside respondents’ continuing complaints about supply availability and delivery times.

Business sentiment remained less upbeat than the activity data. ISM reported that 34% of general comments were positive and 66% negative, a deterioration for the third month in a row. Among negative comments, price volatility and longer lead times were especially common themes, and respondents could cite more than one issue.