The U.S. manufacturing sector maintained its expansion for a tenth consecutive month in October, although growing concerns over geopolitical instability, inflation and trade policies continue to cloud the industry's outlook.

According to the latest Purchasing Managers’ Index (PMI) released by the Institute for Supply Management (ISM), manufacturing activity reached 55.5% in October, marking a one-percentage-point increase from September. Any reading above 50% signals expansion, while figures below that threshold indicate contraction. ISM also reported that overall U.S. economic activity expanded for the 24th consecutive month.

However, a separate assessment from S&P Global offered a slightly less optimistic picture. Its U.S. Manufacturing PMI stood at 54.9 in October, one percentage point below September's reading.

Despite the positive headline figures, manufacturers are facing mounting operational and financial pressures. Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said during a Monday conference call that the Iran war and volatile prices continued to weigh heavily on the sector.

She also highlighted a growing deterioration in business sentiment, with more survey participants expressing concerns about pricing and other economic challenges than in the previous month.

“The increase in negative sentiment is really all about the inflationary pressures and the constraint in availability of raw materials, made worse by the Iran War and trade wars,” Spence explained.

Most major manufacturing industries remain in expansion

Five of the six largest manufacturing industries recorded growth in October. These included machinery, computer and electronic products, transportation equipment, chemical products, and food, beverage and tobacco products.

The latest ISM figures also revealed continued improvement across several key production and demand indicators.

The New Orders Index remained in expansion for the tenth consecutive month, following four successive months of contraction. It reached 55.5%, representing a modest 0.2-percentage-point increase from September.

Production activity strengthened more noticeably. The Production Index climbed to 59% in October, up 2.3 percentage points from the previous month.

Meanwhile, the Prices Index remained firmly in expansion territory at 75.2%. Although still elevated, the reading declined by 2.7 percentage points from September's 77.9%, suggesting a slight easing in the pace of price pressures.

The Backlog of Orders Index recorded 54.6%, down 1.8 percentage points month over month. Employment also remained in expansion territory, although its index slipped 0.3 percentage points to 52.4%. The manufacturing industry had previously added 9,000 jobs in September.

Supplier performance continued to deteriorate, with the Supplier Deliveries Index indicating slower delivery times for the eleventh consecutive month, following a single month in which deliveries accelerated. Its October reading reached 59.1%, up 0.1 percentage points from September.

Under the ISM methodology, this indicator works differently from most other PMI components: a reading above 50% signals slower supplier deliveries rather than improvement.

Inventory indicators also showed a shift. The Inventories Index returned to expansion, reaching 51.4%, an increase of 2.8 percentage points compared with September. By contrast, the Customers’ Inventories Index remained unchanged at 41.6%, continuing to signal that customer inventories are below desired levels.

International trade indicators recorded modest improvements. The New Export Orders Index increased 0.3 percentage points to 51.2%, while the Imports Index climbed 1.9 percentage points to 52.9%.

Overall, three of the four demand-related indicators new orders, order backlogs and new export orders remained in expansion territory. Customer inventories also stayed in the category considered 'too low', contracting at the same rate as in September. According to ISM, low customer inventory levels are generally viewed as a positive signal for future manufacturing production, as businesses may need to replenish stocks.

Inflation, geopolitical tensions hurt business confidence

Manufacturers are becoming increasingly downbeat about the economic environment despite the continued expansion.

Spence said overall sentiment had worsened for the third month running. In October, 66% of respondents’ comments were classified as negative, compared to 34% that were positive. A few of the comments classified as positive still expressed concerns about general business conditions.

Inflation remained one of the industry’s most persistent problems. Spence said manufacturing prices have now risen for 25 months in a row.

One respondent in the chemical products industry said that 2026 would be a very difficult year for strategic sourcing.

The three expressions that best described the company's sourcing environment were identified as "negative, inflation, in the red".

The respondent said the business usually anticipates annual inflation of between 2% and 3% and is generally successful in keeping cost increases below 2%. But costs are up more than 6% this year, forcing the company to fight to keep spending categories within their usual targets.

Weak demand and political uncertainty are another layer of pressure.

"There is a slowdown in demand for capital scientific instrumentation equipment worldwide amid continued uncertainty in the Middle East, Eastern Europe and China," said a representative of the computer and electronic products industry.

The respondent also noted the upcoming U.S. midterm elections and uncertainty about future funding for scientific research and the National Institutes of Health. These factors are affecting the buying decisions. Customers are more inclined to optimize the existing technologies and equipment, instead of investing in new ones.

Tariff uncertainty continues to hamper industrial planning

Changes in U.S. trade policy and the political climate more generally are also affecting manufacturers’ ability to plan ahead.

A respondent in the fabricated metal products industry said Washington economic policies continued to weigh on business conditions. Against a background of considerable uncertainty customers were unwilling to commit themselves to anything beyond the shortest possible periods of contract.

The respondent also cautioned that Canadian tariffs continued to have an adverse effect on smaller U.S. firms selling into the Canadian market.

These issues illustrate the impact of trade disputes on not only international trade but also investment decisions, customer relationships and the stability of manufacturing operations.

Semiconductor demand exposes supply chain vulnerabilities

Another example of challenges is in the semiconductor industry where the market conditions change very rapidly.

The demand for semiconductors is growing fast but manufacturers are having difficulty keeping up with orders and suppliers are feeling increasing pressure on their production capacity and delivery schedules.

One industry respondent cited rapid growth in the semiconductor, government and defense markets as a key operational challenge.

After years of waiting for demand to pick up, the long-awaited surge has finally arrived. But the company’s experience suggests global supply chains are straining to accommodate the increase.

Prices and lead times are going up, with some items being delayed that remind people of the COVID-19 disruption period.

The respondent gave dramatic examples of the deterioration: something that took four weeks to obtain now takes 50 weeks; a product that was $2,000 US six months ago now costs $4,000 US.

The company said its inventory position was working on a hand-to-mouth basis and there was not enough stock to comfortably meet demand. Meanwhile, delivery delays are increasingly frustrating customers and putting further pressure on suppliers to deliver outstanding orders.

The situation illustrates the tricky balancing act manufacturers have to perform between meeting booming demand, sourcing components and keeping down procurement costs.

Further growth depends on geopolitical stability

In the near term, Spence does not see a major easing of pricing pressures unless geopolitical tensions and the ongoing trade conflict begin to subside.

"If these outside constraints are lifted, then the manufacturing sector can grow better," she said.

“I’m still convinced that we’re being held back from a bigger push in expansion,” she said.

“The resolution of the war, or bringing it close to an end, could potentially unleash a much stronger wave of economic and industrial activity,” Spence said.

The October PMI data are mixed at the moment. The U.S. manufacturing sector continues to expand, supported by increased production, new orders and demand across a number of large industries. But inflation, trade uncertainty, raw material shortages and long lead times from suppliers are still big challenges.

Therefore, the sector’s ability to maintain its growth momentum will depend not only on domestic demand but also on improvements in global supply chain reliability and a more stable geopolitical and trade environment.