U.S. manufacturing activity remained firmly in expansion territory for a ninth consecutive month in September, according to a Thursday report from the Institute for Supply Management. Yet while production and new orders continued to grow, manufacturing supply executives surveyed for the report pointed increasingly to “pricing pressures” as a major concern.
Among the main headwinds were rising transportation costs, partly linked to elevated diesel fuel prices, as well as higher input costs associated with tariffs.
The ISM Manufacturing PMI came in at 54.5 in September, only 10 basis points below August’s reading and 40 basis points below the consensus expectation. A reading above 50 indicates expansion, while a reading below 50 signals contraction.
The report noted that a sustained PMI level above 47.5 is generally associated with overall economic growth. September’s result was consistent with annualized real GDP growth of 2.4%.
New orders continue to expand, but sentiment weakens
The New Orders Index, a key indicator of future manufacturing activity, increased for a ninth consecutive month. The index reached 55.3, up 1.6 percentage points from August.
Five of the six largest manufacturing industries tracked by the ISM reported higher new orders: computer and electronics, chemical products, transportation equipment, food and beverage, and machinery.
Despite the continued expansion, sentiment surrounding new orders weakened further. The ratio of positive-to-negative comments fell to 1.7-to-1, compared with 3.5-to-1 in July. Even so, a sustained reading of 52 or higher for the subindex is consistent with a growing manufacturing order book.
Customer inventories remained at what the ISM describes as “too low” levels. The Customer Inventories Index stood at 41.6, down 1.2 points from the previous month.
A “too low” reading is generally viewed as a positive signal for future production because manufacturers may need to rebuild depleted inventories. However, the ISM cautioned that a rising interest-rate environment, combined with continued goods-cost inflation, could discourage some companies from carrying higher stock levels.
Backlogs and production remain in expansion territory
The Backlog of Orders Index rose 4.6 points during the month to 56.4, pointing to continued pressure on production pipelines.
Production itself reached 56.7, marking an 11th consecutive month of expansion, although the reading was down 1.6 points from August.
Manufacturing employment also remained in growth territory for a third straight month. The employment index rose 1.5 points sequentially to 52.7.
Supply chain conditions continued to show signs of strain. The ISM Supplier Deliveries Index, which tracks delivery times to manufacturing facilities, has pointed to slowing deliveries and supply chain constraints for 10 consecutive months.
The September reading was 59, down 30 basis points from August. The Supplier Deliveries Index is the only inverted component of the ISM manufacturing survey, meaning that a higher reading corresponds to slower deliveries.
Inflation becomes the dominant concern
Overall sentiment among survey respondents shifted further into negative territory, with 40% of comments positive and 60% negative. In August, the split stood at 42% positive and 58% negative.
Among the issues cited most frequently were pricing volatility, tariffs, the Iran war and longer lead times.
Cost inflation emerged as the leading concern. The Prices Index jumped 6.8 points to 77.9 in September.
Higher prices were reported by 58.6% of respondents, an increase of 12.4 percentage points from August. At the same time, raw-material prices continued to rise for a 24th consecutive month.
Lead times for capital expenditures also lengthened. The average commitment lead time for capex reached 176 days in September, five days longer than in August.
LTL tonnage continues to rise as the sector enters an early recovery phase
The industrial economy typically represents about two-thirds of less-than-truckload revenue, making the manufacturing PMI an important indicator for the LTL market. According to the analysis, the ISM dataset tends to lead turning points in LTL volumes by roughly three months.
Third-quarter updates from publicly traded carriers indicated that year-over-year tonnage growth has continued to accelerate on a cumulative basis since first turning positive in March.
Further evidence of improving conditions came from Old Dominion ([NASDAQ: ODFL]), which reported an acceleration in year-over-year yield growth in August, both with and without fuel surcharges. Higher shipment weights remained a modest headwind.
Like other carriers in the segment, Old Dominion has also recently pulled forward its annual general rate increase across various tariff codes.
Old Dominion is scheduled to open the LTL earnings season on October 28, when it will release its third-quarter results before the market opens.
Why the September PMI matters for logistics
The ISM manufacturing dataset remains an important source of macroeconomic signals for logistics, procurement and capacity planning.
Continued expansion in manufacturing provides an early indication of potential demand for less-than-truckload transportation, while the simultaneous rise in prices, transportation costs and lead times highlights the pressures still affecting manufacturers and supply chains.
