Economic activity in the U.S. manufacturing sector expanded in September for the ninth consecutive month to 54.5%, 0.1 percentage point lower than August, according to the Institute for Supply Management’s latest Purchasing Managers’ Index.
A figure below 50% indicates an industry in contraction. The overall economy grew for the 23nd month in a row, ISM reported.
The S&P Global U.S. Manufacturing PMI registered 55.9, up two points from August.
Despite some positive signs, Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said inflation and geopolitical unrest continue to affect the manufacturing sector.
“The most recent surge in price growth has renewed my concern about price volatility,” she said during a media call on Thursday. “Trade wars, chaos, whatever you care to call it, is really what’s affecting inflation.”
Five of the six largest manufacturing industries — computer and electronic products; food, beverage and tobacco products; transportation equipment; machinery; and chemical products — expanded in September.**
ISM’s New Orders Index expanded for the ninth consecutive month after four straight readings in contraction, registering 55.3%, up 1.6 percentage points compared to August. The September reading of the Production Index registered 56.7%, or is 1.6 percentage points lower than in August.
The Prices Index registered 77.9%, a “notable increase” of 6.8 percentage points compared to August’s reading of 71.1%, Spence said. The Backlog of Orders Index registered 56.4%, up 4.6 percentage points compared to the 51.8% recorded in August.
The Employment Index reading of 52.7% was up 1.5 percentage points from August’s figure of 51.2%. The manufacturing industry added 16,000 jobs in August.
The Supplier Deliveries Index indicated slowing performance for the 10th month in a row after one month in “faster” territory. The reading of 59% was down 0.3 percentage point from its August reading of 59.3%. Supplier Deliveries is the only ISM PMI Report index in which a reading of above 50% indicates slower deliveries.
The Inventories Index registered 48.6%, down 2 percentage points compared to August. The Customers’ Inventories Index reading of 41.6% was 1.2 percentage points lower compared to the 42.8% recorded in August.
The New Export Orders Index lost 2.3 percentage points in September for a reading of 50.9% versus 53.2% in August. The Imports Index registered 51% , a decrease of 1.5 percentage points compared to August’s reading of 52.5%.
Three of ISM’s four demand indicators — New Orders, Backlog of Orders and New Export Orders — remained in expansion, and the Customers’ Inventories Index remained in “too low” territory, contracting at a faster rate. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.
“Since June, new orders have been in this up-down pattern, up one month and down the next,” Spence said. She added that employment showed “the same up-down pattern — not steady in either direction.”
Respondents cite economic uncertainty
In September, 40% of the comments submitted to ISM were positive and 60% were negative, with a 1-to-1.6 ratio of positive to negative sentiment, Spence said in a news release.
Among negative comments, pricing volatility was mentioned in 46%, tariffs 34%, the Iran war 30% and increasing lead times 21%. Most comments mentioned multiple factors.
“Sentiment is certainly worrisome,” especially when it comes to the tariffs that the Trump administration recently imposed on Canada and that country’s retaliatory tariffs, Spence said during the call.
Many respondents agreed, citing tariffs, the war in Iran and general economic and geopolitical uncertainty as negatively impacting their businesses.
“The U.S. tariff schedule is providing challenges,” said one respondent in the computer and electronic products industry. “Finding alternate sources of supply outside of China, local pushback on data centers in the U.S. and continuing material/component shortages are affecting business.”
A respondent in the machinery industry agreed that the tariffs are causing problems, even though the company’s orders are up.
“Orders have doubled yet again, and delivery times have also doubled, in the semiconductor, electronics and government sectors, with remaining sectors flat to down,” the respondent said. “Coupled with supply chain lead times and pricing pressures, the factory backlog has nearly doubled. Canada tariffs have impacted cross-border costs and left our supply chain team scrambling — those supply chains took years to develop and nurture — hurting the very lead times government buyers are concerned about.”
Another respondent in the transportation equipment industry agreed.
“Every month, we are faced with new headwinds created by this administration,” the respondent said. “This month, it is the trade war with Canada, which every day is getting worse — causing prices to go up and uncertainty that creates massive disruption. Buying continues to get pushed out indefinitely as customers don’t want to spend on capital expenditures until there is more certainty of costs and demand. The only thing that is predictable is the chaos that is created by these trade policies.”
This story was first published in our Procurement Weekly newsletter. Sign up here.
