ISM Manufacturing 54.5 vs 54.8 Est — Prices Jump 6.8 Points to 77.9

Fundamentals · 2026-10-01

Manufacturing PMI 54.5 in September vs 54.8 est, down 0.1 from August's 54.6, a ninth straight month of expansion; Prices 77.9, up 6.8 points from 71.1 against a 72.3 estimate, the highest since May and a 24th straight month of rising input costs; 58.6% of respondents paid more, up from 46.2%; New Orders +1.6 to 55.3; Backlog +4.6 to 56.4; Employment +1.5 to 52.7; Production -1.6 to 56.7; Inventories -2.0 to 48.6, back in contraction; Supplier Deliveries 59.0, slowing for a 10th month; New Export Orders -2.3 to 50.9; 24 commodities up in price, none down; only 2% of manufacturing GDP contracting against 22% in August; ISM maps the headline to 2.4% annualized real growth.

What It Changes

• The headline missed and the part the Fed reads hit hard. 54.5 is 0.3 under consensus and flat on the month, but the Prices Index jumped 6.8 points to 77.9 against a 72.3 estimate, ending two months frozen at 71.1.
• It puts manufacturing costs back where they were at the start of the Iran war. ISM puts it close to March's 78.3, its level "at the beginning of the Iran war", driven by steel and aluminum, tariffs and petroleum-based products.
• Demand turned back up underneath a flat headline. New Orders, Backlog and Employment all rose; Production and Inventories fell. The headline hides a better month for orders and a worse one for costs.
• For the rate path it supports the hawks on the day core PCE helped the doves. October odds were about 37% before the print; a cost gauge at 77.9 is the kind of input that argues against letting the hike slide to December.

Impact

• USD — Slight bullish — a hot prices print supports hike pricing, and the dollar firmed into a fresh test of its 52-week high.
• DXY was 101.72 going into 10:00 ET and 101.80 at the end of the first five minutes (TradingView, delayed). It touched 101.86 at about 10:50, level with The Open's 52-week high of 101.85.
• The 10-year jumped from 5.32% to 5.342% in the first five minutes, just short of the 5.347% overnight high, then gave it all back to 5.293% by 10:50.
• US Indices (ES / NQ / YM / RTY) — Slight bearish — costs at war-start levels with demand only modestly better is a margin squeeze, and the print landed on a tape already selling off from the cash open.
• ES (Dec) was 7,711.25 at 09:55 ET, fell to 7,683.75 in the 10:00 bar and 7,682.25 in the next, then recovered to 7,700.75 by 10:40 (TradingView, delayed). About 23 points of the drop had already come between the 09:30 open and 10:00.
• YM is the index with the most exposure. Steel, aluminum and freight costs land on industrials and materials first, and Wednesday's Dow weakness was led by GS and CAT.
• Gold (GC) — Slight bearish — gold fell on the print and then recovered, which says the inflation read is being traded through real yields, not as a haven.
• GC (Dec) dropped from $4,195 to a $4,180.80 low in the first 15 minutes, then recovered to about $4,199-$4,203 by 10:40 as the 10-year eased.
• 6C — Slight bearish — three ISM respondents named new US tariffs on Canada, one calling it a trade war "which every day is getting worse", and S&P Global's Canada manufacturing PMI fell to 51.5 from 53.0 this morning on lost US demand.

Inside The Number

The Manufacturing PMI registered 54.5 in September, 0.1 point below August's 54.6 and 0.3 below a 54.8 consensus. It is a ninth straight month of expansion after ten months of contraction, and ISM maps the reading to 2.4% annualized real GDP growth, the same as August. Trading Economics carried a 55.0 consensus, so depending on the source the miss was 0.3 or 0.5. Either way the headline is the least interesting number in the report.

The Prices Index is the story. It registered 77.9, up 6.8 points from 71.1, against a 72.3 consensus. That is a 5.6-point beat and the end of a two-month freeze at 71.1 that last month's brief made its headline. The response distribution is worse than the index: 58.6% of respondents reported paying higher prices, up 12.4 points from 46.2%, with just 2.8% reporting lower. The net reading jumped from +42.2 to +55.8. All six of the largest manufacturing industries paid more, led by Petroleum & Coal Products, and 16 of 18 industries reported higher prices with none reporting lower.

Where 77.9 sits. It is the highest reading since May (82.1), after June's 73.0 and two months at 71.1, and ISM puts it close to March's 78.3, the reading at the start of the Iran war. Spence names three drivers: steel and aluminum prices that "impact the entire value chain", tariffs on imported goods, and petroleum-based products "as a result of the Middle East conflict". Raw materials prices have now risen for 24 straight months.

The commodity list explains why it will not ease quickly. Twenty-four commodities were reported up in price and none down, against 24 up and two down in August. Aluminum has been up for 34 consecutive months, copper 15, steel 11, steel products 10, hot-rolled steel and electronic components nine each. New to the up list this month: brass products, nickel, packaging materials, soybean meal and zinc. On the short-supply side, electronic components have been scarce for 19 straight months, electrical components 15, memory nine, and DRAM, aluminum products, hot-rolled steel and steel products are new entries.

Demand turned back up. New Orders rose 1.6 points to 55.3, reversing most of August's 3.0-point fall. The share of firms reporting higher orders rose to 23.4% from 19.0%, and the net reading more than doubled, from +3.4 to +7.9. Backlog of Orders jumped 4.6 points to 56.4, the largest move of any demand gauge. Customers' Inventories fell further into "too low" territory at 41.6, which ISM reads as positive for future production. Three of the four demand indicators are in expansion.

But the comments are getting worse, not better. Demand sentiment slipped again: 1.7 positive comments for every negative one, against 2-to-1 in August and 3.5-to-1 in July. Across all comments, 40% were positive and 60% negative, against 42/58 in August. Production comments fell to a 1.6-to-1 ratio from 2.2-to-1. The indexes say orders improved; the people filling in the survey are less happy about it each month.

The headline is an equal-weighted average of five subindexes, so the move decomposes exactly. New Orders added +0.32, Employment +0.30, Production took away -0.32, Inventories -0.40 and Supplier Deliveries -0.06, for a net of -0.16. The two demand-and-hiring components rose; the two activity-and-stocks components fell. Supplier Deliveries at 59.0 is still the highest of the five, and because it is inverted, slower deliveries add to the headline. Strip it out and the other four average 53.3, more than a point below the published 54.5.

Employment is the number that ties to Friday. The Employment Index rose 1.5 points to 52.7, a third month of expansion and above ISM's 50.3 threshold for consistency with rising BLS manufacturing payrolls. The underlying net is still thin: 15.3% hired against 14.5% cut, a net of +0.8, with 70.2% reporting no change. Only two of the six largest industries added workers. A Fabricated Metal Products respondent called "a severe shortage of workers" the biggest challenge to output.

Breadth improved sharply even as fewer industries grew. Only 2% of manufacturing GDP was contracting in September, against 22% in August, and 2% was in strong contraction, unchanged. Five of the six largest industries expanded. But 12 of 18 industries grew, against 15 in August, with Printing and Textile Mills contracting. Fewer industries grew; almost none of the big ones shrank.

Exports and imports both slowed. New Export Orders fell 2.3 points to 50.9, still barely expanding, with eight industries reporting lower export orders against four higher. Imports fell 1.5 points to 51.0. Respondents tie both to tariffs, and this month that means Canada: one Machinery respondent said "Canada tariffs have impacted cross-border costs", and a Transportation Equipment respondent described "the trade war with Canada, which every day is getting worse".

The negative comments changed shape. Pricing volatility appeared in 46% of negative comments (57% in August), tariffs 34% (29%), the Iran war 30% (unchanged) and increasing lead times 21% (46%). Lead-time complaints halved while tariff complaints rose. A Chemical Products respondent said lead times are "largely normalized", even as the Supplier Deliveries Index stayed at 59.0.

The AI thread is still there, as both demand and constraint. A Machinery respondent reported orders that "have doubled yet again" in semiconductors, electronics and government, with delivery times doubling and the factory backlog nearly doubling. Another said "booming demand of AI and data centers" has stretched domestic steel capacity. Computer & Electronic Products now reports higher new orders, production, employment and backlog, a better picture than August's orders-up, output-down split.

Against the Fed and the morning's data. Core PCE came in soft on Wednesday and October hike odds fell to about 37%. This report argues the other way on goods costs. S&P Global's final manufacturing PMI, out at 09:45, was revised down to 55.9 from a 57.0 flash (per Trading Economics' summary), so both surveys softened at the headline this morning while the ISM cost gauge rose. The Fed hiked in September on inflation; 77.9 on the Prices Index is the clearest sign in this month's data that the goods side has not finished.

The Internals

Manufacturing at a glance, September 2026. The first six rows are the headline and the five subindexes that compose it:

Index · Sep 2026 · Aug 2026 · Change · Direction · Rate of change · Months in trend

Manufacturing PMI · 54.5 · 54.6 · -0.1 · Growing · Slower · 9

New Orders · 55.3 · 53.7 · +1.6 · Growing · Faster · 9

Production · 56.7 · 58.3 · -1.6 · Growing · Slower · 11

Employment · 52.7 · 51.2 · +1.5 · Growing · Faster · 3

Supplier Deliveries · 59.0 · 59.3 · -0.3 · Slowing · Slower · 10

Inventories · 48.6 · 50.6 · -2.0 · Contracting · From growing · 1

Customers' Inventories · 41.6 · 42.8 · -1.2 · Too low · Faster · 24

Prices · 77.9 · 71.1 · +6.8 · Increasing · Faster · 24

Backlog of Orders · 56.4 · 51.8 · +4.6 · Growing · Faster · 9

New Export Orders · 50.9 · 53.2 · -2.3 · Growing · Slower · 3

Imports · 51.0 · 52.5 · -1.5 · Growing · Slower · 8

Against consensus:

Index · Actual · Consensus · Surprise

Manufacturing PMI · 54.5 · 54.8 · -0.3

Prices · 77.9 · 72.3 · +5.6

How the headline moved, by component (each carries a one-fifth weight):

Component · Change · Contribution to headline

New Orders · +1.6 · +0.32

Employment · +1.5 · +0.30

Production · -1.6 · -0.32

Inventories · -2.0 · -0.40

Supplier Deliveries · -0.3 · -0.06

Net · n/a · -0.16

Response distributions, September against August:

Index · Higher Sep · Higher Aug · Lower Sep · Lower Aug · Net Sep · Net Aug

New Orders · 23.4% · 19.0% · 15.5% · 15.6% · +7.9 · +3.4

Production · 25.4% · 25.1% · 11.9% · 12.0% · +13.5 · +13.1

Employment · 15.3% · 11.8% · 14.5% · 11.5% · +0.8 · +0.3

Inventories · 11.4% · 14.7% · 13.0% · 11.7% · -1.6 · +3.0

Prices · 58.6% · 46.2% · 2.8% · 4.0% · +55.8 · +42.2

Backlog of Orders · 23.4% · 19.7% · 10.6% · 16.1% · +12.8 · +3.6

New Export Orders · 12.8% · 12.0% · 11.0% · 5.6% · +1.8 · +6.4

Imports · 13.1% · 10.1% · 11.2% · 5.2% · +1.9 · +4.9

Supplier Deliveries, slower vs faster · 21.4% · 21.9% · 3.4% · 3.4% · +18.0 · +18.5

The Prices Index, recent run:

Month · Prices Index · Higher prices reported

March 2026 · 78.3 · n/a

June 2026 · 73.0 · 55.1%

July 2026 · 71.1 · 50.2%

August 2026 · 71.1 · 46.2%

September 2026 · 77.9 · 58.6%

The headline PMI over the last 12 months:

Month · PMI · Month · PMI

Sep 2026 · 54.5 · Mar 2026 · 52.7

Aug 2026 · 54.6 · Feb 2026 · 52.4

Jul 2026 · 55.6 · Jan 2026 · 52.6

Jun 2026 · 53.3 · Dec 2025 · 47.9

May 2026 · 54.0 · Nov 2025 · 48.0

Apr 2026 · 52.7 · Oct 2025 · 48.8

Twelve-month average 52.3, high 55.6 (July), low 47.9 (December).

Breadth and sentiment:

Measure · September · August

Share of manufacturing GDP contracting · 2% · 22%

Share in strong contraction, PMI 45 or below · 2% · 2%

Industries growing · 12 of 18 · 15 of 18

Largest six industries expanding · 5 · n/a

Positive vs negative comments, all · 40% vs 60% · 42% vs 58%

Demand comment ratio, positive to negative · 1.7 to 1 · 2 to 1

Production comment ratio, positive to negative · 1.6 to 1 · 2.2 to 1

Commodities up in price · 24 · 24

Commodities down in price · 0 · 2

Buying policy, average commitment lead times:

Category · September · August · Change

Capital expenditures · 176 days · 171 days · +5

Production materials · 84 days · 84 days · 0

Maintenance, repair and operating supplies · 49 days · 48 days · +1

What The Firms Actually Said

Which industries grew. The 12 reporting growth, in order: Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; Miscellaneous Manufacturing; and Chemical Products. Printing & Related Support Activities and Textile Mills contracted.

Steel and the AI buildout. A Machinery respondent: "Due to booming demand of AI and data centers, domestic steel capacity has been stretched and pushed. Higher steel costs each month increase our raw-material and finished-goods costs." A Fabricated Metal Products respondent called steel availability "getting worse" and expected "more production delays".

Orders that keep doubling. Another Machinery respondent said orders "have doubled yet again, and delivery times have also doubled" in semiconductors, electronics and government, with the factory backlog "nearly doubled" and the remaining sectors "flat to down". That split, a few sectors booming and the rest flat, is the shape behind the Backlog Index's 4.6-point jump.

Canada. Three respondents named new tariffs on Canada. Electrical Equipment: "New tariffs against Canada have drastically increased costs for capital expenses as well as assemblies." Transportation Equipment, the most negative comment in the report: buying "continues to get pushed out indefinitely as customers don't want to spend on capital expenditures until there is more certainty of costs and demand."

Energy and food. Food, Beverage & Tobacco: "Fuel costs are still affecting transportation costs and the overall cost of goods. Beef costs remain high, with no relief in sight."

The skeptic. A Chemical Products respondent said better performance came from "temporary market effects", including customers pulling purchases forward and delayed raw material price increases, and that these "do not signal sustained recovery". Another Chemical Products panelist was "cautiously optimistic" and said lead times are "largely normalized".

Rates. One Machinery respondent: "Higher interest rates slow down the growth of new construction projects." It is the only direct reference to rates in the published comments.

Against This Morning's Open

• The Open called ISM the fulcrum and named the prices component. The Open said "The fulcrum is ISM at 10:00, and its prices component in particular," with a 55.0 headline and 72.3 prices consensus.
• It resolved as a split The Open did not price. The Open said a headline above 55 with prices above 72 "would support the long-end selloff and the dollar" and a miss "would take some pressure off the long end". It got a headline miss and a prices blowout: the dollar firmed, and the 10-year spiked to 5.342% and then gave it all back.

What This Sets Up

• Next ISM Manufacturing: Monday 2 November, covering October.
• Whether prices hold above 75. One month at 77.9 could be a catch-up after two frozen readings; a second month near this level would confirm that goods-cost pressure is back at war-start levels.
• Whether New Orders keeps rising with sentiment falling. The index and the comment ratio have now moved in opposite directions, and one of them has to give.
• Whether Inventories stays below 50. It turned to contraction this month as firms drew down stock; with Customers' Inventories at 41.6, a restocking turn would lift production next.

What Is This?

• What it is: The Institute for Supply Management's monthly survey of manufacturing purchasing managers, released on the first business day of each month at 10:00 ET and reported by committee chair Susan Spence. The headline PMI is an equal-weighted composite of exactly five subindexes (New Orders, Production, Employment, Supplier Deliveries and Inventories), which means it can be decomposed precisely. Prices, Backlog, Customers' Inventories, New Export Orders and Imports are published alongside but do not enter the headline.
• Why it matters: It is the first hard read on September activity and the first major data after Wednesday's soft core PCE, and its Prices Index is the earliest monthly read on goods-cost pressure. The Fed hiked in September on inflation and markets are split on whether the next hike comes in October or December, so the prices component carries more weight than the headline.
• How to read it: Fifty divides expansion from contraction, but ISM publishes its own thresholds and they are more useful: a PMI above 47.5 signals overall economic expansion, New Orders above 51.9 is consistent with rising Census manufacturing orders, Employment above 50.3 with rising BLS manufacturing payrolls, and Prices above 52.8 with a rising BLS producer price index for intermediate materials. Supplier Deliveries is inverted, so above 50 means slower deliveries; a higher number is supply-chain stress, even though it pushes the headline up.

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_For informational purposes only. Not investment advice._