ISM manufacturing prices index surged to 77.9 in September, complicating Fed's next move

In September, U.S. manufacturing activity continued to expand for the ninth consecutive month, according to a report released on Thursday. The Institute for Supply Management's Manufacturing PMI stood at 54.5, just 10 basis points below August's figure and 40 bps shy of expectations. A PMI above 50 indicates expansion, while a reading below 50 suggests contraction.

A sustained level above 47.5 signals overall economic growth, with the September reading aligning with annualized real GDP growth of 2.4%. New orders, a crucial indicator for future activity, also expanded for a ninth consecutive month, reaching 55.3, a 1.6 percentage point increase from August. While five of the six largest manufacturing industries reported increased new orders, the demand sentiment for these orders declined, with a ratio of 1.7 positive comments to every negative comment, down from 3.5 in July.

Customers' inventories remained "too low" at 41.6, slipping 1.2 points from the previous month. While such a status is typically positive for future production, rising interest rates and existing goods cost inflation could discourage some firms from maintaining elevated stock levels. The backlog of orders dataset increased by 4.6 points, while production expanded for an 11th consecutive month, but dipped 1.6 points from August.

Manufacturing employment grew for the third straight month, up 1.5 points sequentially. The supply deliveries index, which measures delivery times to manufacturing facilities, has indicated slowing delivery times and supply chain constraints for 10 consecutive months, with the index falling 30 basis points from the previous month.

Overall, sentiment from respondents was 40% positive and 60% negative, a slight shift from 42% positive and 58% negative in August. Pricing volatility, tariffs, the Iran war, and longer lead times were the most frequently cited concerns, with cost inflation emerging as the primary issue. The prices index rose by 6.8 points to 77.9, with 58.6% of respondents citing higher prices, marking a 12.4-point increase from August.

The average commitment lead time for capex grew to 176 days in September, a five-day increase from August. FreightWaves highlights the significance of the ISM dataset in providing macroeconomic indicators that impact logistics, procurement, and capacity planning. Continued manufacturing expansion serves as a leading indicator for less-than-truckload (LTL) demand, with the ISM dataset often predicting inflections in LTL volumes by approximately three months.