TEMPE, Ariz. — Economic activity in the manufacturing sector contracted in September for the seventh consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation's supply executives in the latest ISM Manufacturing PMI Report.
The report was issued Wednesday by Susan Spence, MBA, chair of the Institute for Supply Management Manufacturing Business Survey Committee.
"The Manufacturing PMI registered 49.1 percent in September, a 0.4-percentage point increase compared to the reading of 48.7 percent recorded in August. The overall economy continued in expansion for the 65th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted in September following one month of growth; the figure of 48.9 percent is 2.5 percentage points lower than the 51.4 percent recorded in August. The September reading of the Production Index (51 percent) is 3.2 percentage points higher than August's figure of 47.8 percent. The Prices Index remained in expansion (or 'increasing' territory), registering 61.9 percent, down 1.8 percentage points compared to the reading of 63.7 percent reported in August. The Backlog of Orders Index registered 46.2 percent, up 1.5 percentage points compared to the 44.7 percent recorded in August. The Employment Index registered 45.3 percent, up 1.5 percentage points from August's figure of 43.8 percent.
"The Supplier Deliveries Index indicated slower delivery performance for the second consecutive month after one month in 'faster' territory, which was preceded by seven consecutive months in 'slower' territory. The reading of 52.6 percent is up 1.3 percentage points from the 51.3 percent recorded in August. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 47.7 percent, down 1.7 percentage points compared to August's reading of 49.4 percent.
"The New Export Orders Index reading of 43 percent is 4.6 percentage points lower than the reading of 47.6 percent registered in August. The Imports Index registered 44.7 percent, 1.3 percentage points lower or than August's reading of 46 percent.
"In September, U.S. manufacturing activity contracted at a slightly slower rate, with production growth the biggest factor in the 0.4-percentage point gain of the Manufacturing PMI. However, the combined drops in the New Orders and Inventories indexes (4.2 percentage points) exceeded the increase in the Production Index (3.2), rendering the Manufacturing PMI® improvement negligible. Last month's increase in new orders (an index gain of 4.3 percentage points from July to August) seems to have flowed through to production but does not appear to be sustainable given the subsequent drop in new orders in September.
"One of the four demand indicators improved, with the Backlog of Orders Index showing a gain of 1.5 percentage points (which could be due to August's increase in new orders, cited above), while the New Orders, New Export Orders and Customers' Inventories indexes contracted at faster rates. A 'too low' status for the Customers' Inventories Index is usually considered positive for future production.
"Regarding output, the Production and Employment indexes improved, though 64 percent of panelists' comments still indicated that managing head count is still the norm at their companies, as opposed to hiring.
"Finally, inputs (defined as supplier deliveries, inventories, prices and imports), on net, moved further into contraction territory. The Supplier Deliveries Index indicated slower deliveries, the Inventories Index worsened, and the Prices Index continued to increase, but at a slower rate. The Imports Index moved further into contraction.
"Looking at the manufacturing economy, 67 percent of the sector's gross domestic product (GDP) contracted in September, down from 69 percent in August. Twenty-eight percent of GDP is strongly contracting (registering a composite PMI of 45 percent or lower), up from 4 percent in August. The share of sector GDP with a PMI at or below 45 percent is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, only one (Petroleum & Coal Products) expanded in September, compared to two in August."
The five manufacturing industries reporting growth in September are: Petroleum & Coal Products; Primary Metals; Textile Mills; Fabricated Metal Products; and Miscellaneous Manufacturing. The 11 industries reporting contraction in September — in the following order — are: Wood Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Paper Products; Furniture & Related Products; Chemical Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Nonmetallic Mineral Products; Machinery; and Computer & Electronic Products.
WHAT RESPONDENTS ARE SAYING
- "Business continues to be severely depressed. Profits are down and extreme taxes (tariffs) are being shouldered by all companies in our space. We have increased price pressures both to our inputs and customer outputs as companies are starting to pass on tariffs via surcharges, raising prices up to 20 percent. The addition of the derivative steel and aluminum tariffs in the middle of the month — with no announcement — was devastating. Interest-rate lowering or the 'One Big Beautiful Bill' will not impact our business, as all capital projects are on hold until there is some level of certainty and customers start to place orders for new equipment again. We believe we are in a stagflation period where prices are up but orders are down due to tariff policy, and again, customers are not willing to pay the higher prices, so they are just not buying. Continuing to find ways to reduce overhead, which means letting go of experienced workers." (Transportation Equipment)
- "The tariffs are still causing issues with imported goods into the U.S. In addition to the cost concerns, product is being held up at borders due to documentation issues. The inflation issues continue; low volumes are a constant concern. The European region is not improving as we had expected, causing further concern for long-term business viability." (Chemical Products)
- "Ongoing macroeconomic conditions highlighted by interest-rate management and tariffs continue to impact customer purchasing decisions, resulting in subdued production rates and growing cost concerns on direct material and operations." (Machinery)
- "Lead times have slightly normalized, but tariffs continue to drive additional spend." (Petroleum & Coal Products)
- "Customer orders are depressed for heavy machinery because tariffs are so impactful to high-end capital equipment. Revenue expectations are flat for the rest of 2025, with no outlook to improve in 2026." (Electrical Equipment, Appliances & Components)
- "Current business conditions remain volatile, with geopolitical tensions, weather disruptions and shifting trade policies driving uncertainty in agricultural commodities. Oils remain sensitive to biofuel demand and global production. Inflation and evolving consumer trends add further complexity. To manage this, we are emphasizing supplier diversification, long-term contracts and formula-based pricing to balance cost stability with flexibility." (Food, Beverage & Tobacco Products)
- "The semiconductor industry is being impacted by high tariff prices on parts from Korea, China and Europe. Our industry is at a low point right now as we race to get new nanotechnology in the U.S." (Computer & Electronic Products)
- "Business is slowing down. Order books are softening as customers push orders out. Seems to be stemming from concerns about the direction of the U.S. economy." (Plastics & Rubber Products)
- "Tariffs still affecting vast amounts of increases in hardware, Al (artificial intelligence) and stainless steel. MRO (maintenance, repair and operating) products have continually increased, and the slowdown in agriculture has had stark impacts on bottom lines for raw materials." (Fabricated Metal Products)
- "Steel tariffs are killing us." (Miscellaneous Manufacturing)
