The consensus read on the September ISM Manufacturing PMI prices data is that US factories are humming along nicely into a ninth consecutive month of expansion. The number underneath that headline, a Prices Index reading of 77.9 percent, up 6.8 percentage points from August’s 71.1 percent, deserves rather more attention than it is getting.
The prices signal the consensus is glossing over
Susan Spence, Chair of the Institute for Supply Management Manufacturing Business Survey Committee, confirmed that the Manufacturing PMI registered 54.5 percent in September, fractionally below August’s 54.6 percent. The headline is stable. The Prices Index is not.
According to PR Newswire, the proportion of respondents reporting higher prices in September rose to 58.6 percent, up 12.4 percentage points from August’s 46.2 percent. Only 2.8 percent reported prices falling. That leaves a net 55.8 percent of survey participants seeing input costs climb, and input prices have now been rising for 24 consecutive months.
ISM identifies three drivers behind the Prices Index surge: increases in steel and aluminium prices that ripple through entire value chains, tariffs applied to a wide range of imported goods, and rising petroleum-based product costs flowing from the Middle East conflict. None of those three forces looks to be dissipating in the near term.
What the expansion numbers actually contain
The Manufacturing PMI above 47.5 percent generally indicates expansion in the broader economy, and at 54.5 percent the September reading comfortably clears that bar. New Orders grew for the ninth consecutive month, registering 55.3 percent, up 1.6 percentage points from August. The Backlog of Orders Index moved to 56.4 percent, up 4.6 percentage points. Employment ticked up to 52.7 percent. On those metrics alone, the expansion story holds.
Production, though, slipped. The Production Index came in at 56.7 percent, down 1.6 percentage points from August’s 58.3 percent. And in September, 60 percent of respondent comments were negative against 40 percent positive, at a ratio of 1-to-1.6. Among the negatives, pricing volatility featured in 46 percent of comments, tariffs in 34 percent, the Iran war in 30 percent and increasing lead times in 21 percent.
Those ratios matter. The PMI is an aggregation; the commentary is where the texture lives. A respondent in Chemical Products described better performance as driven by temporary market effects, customers bringing forward purchases, delayed raw material price increases and reduced competitor capacity, and was explicit that these factors do not signal sustained recovery, with structural challenges including overcapacity, persistent pricing pressures and protectionist trade policies still in place.
A respondent in Machinery described factory backlogs that have nearly doubled, with delivery times doubling in semiconductor, electronics and government sectors. Canada tariffs, they noted, have disrupted cross-border supply chains that took years to build. A respondent in Transportation Equipment described buying being pushed out indefinitely as customers hold off capital expenditure pending cost certainty. The Machinery sector also flagged higher interest rates slowing new construction, overseas component costs elevated by tariffs and freight, and domestic steel capacity stretched by demand from artificial intelligence and data centre build-outs.
A commodity list that concentrates the mind
The commodity data supports the concern. Commodities reported up in price in September include aluminium (for the 34th month), copper (15th month), steel (11th month), steel products (10th month) and electronic components (9th month), among many others. Not a single commodity was reported down in price. Commodities in short supply include electrical components (15th month) and electronic components (19th month), alongside copper, steel, printed circuit boards and tungsten products.
The popular read on this report is that a nine-month expansion run in New Orders and a Manufacturing PMI comfortably above 50 constitute a recovery gathering momentum. The ISM Manufacturing PMI prices data suggests the consensus may be overweighting the top-line strength and underweighting the cost structure that sits beneath it. When MishTalk flagged that input prices are up 24 consecutive months and increasing faster, it was pointing at the number most coverage has been content to file under ‘inflationary backdrop.’ At a net reading of 55.8 percent, with three identifiable structural drivers and no commodities falling in price, that backdrop is doing rather more work than the headline PMI implies.
