Economic activity in the U.S. manufacturing sector expanded in September for the ninth consecutive month, propelled by accelerating new orders and a rapidly expanding accumulation of unfilled factory backlogs. This sustained industrial performance has played a crucial role in buffering the broader domestic economy against a backdrop of escalating cross-border trade friction, fluctuating global commodity prices, and ongoing geopolitical tensions.
According to data released by the Institute for Supply Management (ISM), its bellwether Manufacturing Purchasing Managers’ Index (PMI) registered 54.5% in September. The reading edged down a minimal 0.1 percentage point from August’s reading of 54.6%, maintaining a remarkably stable trajectory. This latest report marks nine straight months of industrial expansion following a previous 10-month contraction period, signaling to economists that the broader U.S. economy has maintained continuous growth for 23 consecutive months. Within the proprietary economic modeling utilized by the ISM, a PMI reading of 54.5% historically corresponds to a robust 2.4% annualized increase in real gross domestic product (GDP).
“In September, U.S. manufacturing activity remained in expansion territory,” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee. Highlighting the internal metrics driving the sector, Spence added that “of the five subindexes that make up the PMI, only New Orders and Employment grew faster than the previous month.”
New Orders and Factory Backlogs Surge
A fresh wave of downstream demand reinforced factory output throughout the month, keeping production lines active despite persistent operational hurdles. The New Orders Index expanded for the ninth consecutive month, climbing to 55.3%. This represents a notable 1.6 percentage point increase from August’s reading of 53.7%. Factory output itself remained remarkably resilient and robust: the Production Index registered 56.7%, marking its 11th consecutive month of continuous growth, even though it slowed by 1.6 percentage points from August’s level of 58.3%.
With incoming new demand outstripping operational output capacity in several high-tech categories, factory order backlogs expanded at an accelerated rate. The Backlog of Orders Index jumped 4.6 percentage points to reach 56.4% in September, up sharply from 51.8% in August. These gains were primarily led by surges in computer and electronic products, as well as fabricated metals.
Broad participation underscored the sector’s health. Five of the nation’s six largest manufacturing industries—specifically Computer & Electronic Products, Chemical Products, Transportation Equipment, Food, Beverage & Tobacco Products, and Machinery—reported higher volumes of new orders during the month.
ISM survey respondents highlighted burgeoning demand within specialized semiconductor and defense supply chains. However, this growth occurred concurrently with cross-border trade friction that severely disrupted daily operations. “Coupled with supply chain lead times and pricing pressures, the factory backlog has nearly doubled,” noted an executive operating within the machinery sector. Explaining the friction further, the executive added, “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.”
Echoing these sentiment challenges, an executive in the computer and electronic products industry observed that while manufacturing activity remains fundamentally stable, “the U.S. tariff schedule is providing challenges.” The executive cited acute difficulties in finding alternate supply sources outside China, alongside local community pushback regarding domestic data center construction and persistent underlying component shortages.
Factory Hiring Increases Amid Labor and Material Shortages
To keep pace with rising order backlogs and mounting customer demand, industrial employers expanded their payrolls at a slightly faster rate in September. The ISM Employment Index rose 1.5 percentage points to 52.7%, compared with 51.2% in August, marking the third consecutive month of employment growth across the manufacturing sector.
Survey panelists overwhelmingly favored active hiring over headcount reductions, maintaining a 1.5-to-1 ratio. Eight distinct manufacturing industries reported expanding employment rolls in September, led by Electrical Equipment, Appliances & Components, Primary Metals, and Wood Products. Among the nation’s six largest manufacturing sectors, Computer & Electronic Products and Transportation Equipment posted notable employment gains.
Despite these positive workforce additions, persistent worker shortages and raw material bottlenecks continue to place a hard ceiling on factory output. “Our biggest challenge continues to be a severe shortage of workers, limiting our production output to meet demand,” reported an executive in the fabricated metal products sector. Elaborating on material constraints, the executive added, “The second challenge is general availability of steel; the market is getting worse, and more production delays are expected as we gap out of needed material.”
Canada Tariffs and Middle East Conflict Drive Material Costs Higher
Despite ongoing output gains, factory managers across the country are confronting steep operational headwinds stemming from soaring raw material prices, trade policy volatility, and international geopolitical conflicts. The Prices Index jumped a dramatic 6.8 percentage points in September to reach 77.9%, up from 71.1% in August. This brings the index close to the 78.3% reading recorded back in March at the outbreak of the Iran war. The index indicates that raw material prices have risen for 24 consecutive months, with 58.6% of survey respondents reporting higher prices in September compared to 46.2% in August.
All six of the largest manufacturing sectors reported paying elevated prices for raw materials during the month. “The Prices Index reading is still being driven by increases in steel and aluminum prices that impact the entire value chain, tariffs applied to many imported goods, and increases in petroleum-based products as a result of the Middle East conflict,” Spence explained.
Supply chain logistics also remained under significant strain, with the Supplier Deliveries Index registering 59.0%. While this represents a fractional decrease of 0.3 percentage point from August’s 59.3%, the reading indicates slower delivery performance for the 10th consecutive month.
Survey comments reflected mounting frustration among executives regarding trade tariffs and foreign policy disruptions. “Every month, we are faced with new headwinds created by this administration,” said an executive in the transportation equipment industry. “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.”
An executive in the electrical equipment and appliances sector similarly noted that raw metal costs remain challenging due to the “uncertain nature of tariffs being on and off again,” adding that new tariffs against Canada have “drastically increased costs for capital expenses as well as assemblies.” Meanwhile, a chemical products manager cautioned that recent performance was driven largely by temporary market effects—including geopolitical uncertainties and customers bringing forward purchases—rather than a sustained structural economic recovery.
Manufacturing Growth Overshadowed by Uncertainty
Overall industrial expansion remained broad-based across the entire manufacturing sector, with 12 of 18 industries reporting overall growth in September. This expansion was led by Electrical Equipment, Appliances & Components, Nonmetallic Mineral Products, Primary Metals, Plastics & Rubber Products, and Computer & Electronic Products. Five of the six largest manufacturing industries expanded, while only two industries—Printing & Related Support Activities and Textile Mills—reported overall contraction.
Signaling potential strength for future factory output, the Customers’ Inventories Index decreased 1.2 percentage points to 41.6% in September, remaining firmly in “too low” territory for the 24th consecutive month. “A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production,” Spence noted.
Conversely, raw materials inventories at factories contracted further, with the Inventories Index falling 2.0 percentage points to 48.6%. Furthermore, overall sentiment among supply executives leaned notably negative. Roughly 40% of survey comments were positive, compared to 60% negative, establishing a 1-to-1.6 positive-to-negative sentiment ratio. Among negative comments, pricing volatility was cited in 46% of responses, tariffs in 34%, the Iran war in 30%, and increasing lead times in 21%.
Despite these multifaceted headwinds, overall manufacturing weakness remained localized. The ISM reported that only 2% of manufacturing GDP contracted in September, down sharply from 22% in August. The portion of manufacturing GDP experiencing strong contraction—defined as a composite PMI of 45% or lower—remained unchanged from August at 2%.
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