Key facts
- US manufacturing activity was little changed in September, with the ISM manufacturing PMI at 54.5.
- Prices for inputs surged to 77.9 in September, up from 71.1 in August.
- New orders increased to 55.3 in September, up from 53.7 in August.
- Factory employment rose to 52.7 in September, up from 51.2 in August.
- The US central bank raised its benchmark interest rate by 25 basis points in September to 3.75%-4.00%.
US manufacturing activity remained largely steady in September, with the Institute for Supply Management's (ISM) manufacturing Purchasing Managers' Index (PMI) falling slightly to 54.5 from 54.6 in August. This figure was below the 55.0 forecast by Reuters-polled economists. The PMI has consistently stayed above the 50 threshold this year, signaling ongoing growth in the manufacturing sector, which constitutes approximately 9.4% of the US economy.
Demand for manufactured goods remains robust, supported by AI infrastructure buildouts and businesses rebuilding inventories. However, concerns persist that sectors not directly benefiting from AI spending may face challenges due to headwinds from the US-Israeli war with Iran, which has disrupted supply chains and driven up energy prices, particularly diesel, to record highs.
The ISM survey indicated increased demand, with the new orders index rising to 55.3 from 53.7 in August, and order backlogs also growing. This strong demand continues to strain supply chains, as evidenced by the supplier deliveries index easing to 59.0 from 59.3, with readings above 50 indicating slower deliveries.
Inflationary pressures at the factory gate intensified, as the gauge for prices paid for inputs jumped to 77.9 from 71.1 in August. This aligns with expectations that inflation may remain above the Federal Reserve's 2% target for an extended period. Earlier revisions to inflation data for July and August had led financial markets to reduce expectations for another interest rate hike this month. The Federal Reserve had previously increased its benchmark interest rate by 25 basis points in September, bringing it to the 3.75%-4.00% range, marking the first hike in three years and signaling further increases ahead.
Manufacturers expanded their workforce in September, with the factory employment measure rising to 52.7 from 51.2 in August. Economists surveyed by Reuters anticipate that factory employment increased by 10,000 last month, following a 16,000 rise in August. Overall nonfarm payrolls are projected to have grown by 90,000, a decrease from the 162,000 surge in August, with the unemployment rate expected to hold steady at 4.1%.