October 1, 2026
The Institute for Supply Management’s index of conditions in the manufacturing sector fell 0.1 point in September to 54.5 after having fallen 1.0 point in August. This is the 9th straight month that the manufacturing sector has been expanding following a 10-moonth period of contraction. It also is essentially at its highest level since May 2022, A level of 54.5 is associated with a GDP increase of 2.4%.
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for September will be released on Monday, October 5.
The Institute for Supply Management Chair for the Survey Committee Susan Spence said, “
“In September, three of four demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) remained in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.
“Regarding output, the Production Index expanded for the 11th month in a row, with the positive-to-negative comment ratio dropping again in September (1.6 positive comments for every negative one, compared to a 2.2-to-1 ratio in August and 3.3-to-1 in July). The Employment Index remained in expansion and gained 1.5 percentage points. The positive-to-negative comments ratio on Employment was 1.5-to-1 in September.
“Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index decreasing 0.3 percentage point, the Inventories Index declining another 2 percentage points and returning to contraction, and the Prices Index increasing 6.8 percentage points, returning to its level at the start of the Iran War. The Imports Index lost 1.5 percentage points, to 51 percent versus 52.5 percent in August.
.Comments from respondents include the following:
- “Better performance was driven primarily by temporary market effects, including (1) geopolitical uncertainties, (2) customers bringing forward purchases, (3) delayed raw material price increases and (4) reduced competitor capacity. However, these factors do not signal sustained recovery: Structural challenges facing the chemical industry remain, including overcapacity, persistent pricing pressures and protectionist trade policies.” [Chemical Products]
- “Supply chain performance has improved compared to prior years, with lead times largely normalized. Cost pressures persist in select raw materials, transportation and labor categories, requiring continued focus on supplier management and cost control. We remain cautiously optimistic about business conditions over the next several quarters.” [Chemical Products]
- “The U.S. tariff schedule is providing challenges. Finding alternate sources of supply outside of China, local pushback on data centers in the U.S. and continuing material/component shortages are affecting business.” [Computer & Electronic Products]
- “Manufacturing activity remains stable, with a continued focus on cost optimization, supplier negotiations and supply base consolidation. We are actively evaluating alternative sources in several categories to improve supply resilience and reduce costs. While material availability has generally improved compared to prior periods, qualification requirements and supplier capacity constraints continue to influence sourcing decisions for certain critical materials and components. Capital and operational spending remain focused on productivity, efficiency and transformation initiatives.” [Computer & Electronic Products]
- “Orders have doubled yet again, and delivery times have also doubled, in the semiconductor, electronics and government sectors, with remaining sectors flat to down. Coupled with supply chain lead times and pricing pressures, the factory backlog has nearly doubled. Canada tariffs have impacted cross-border costs and left our supply chain team scrambling — those supply chains took years to develop and nurture — hurting the very lead times government buyers are concerned about.” [Machinery]
- “Order levels remain strong and elevated; we have orders through year-end at above forecast levels. Our biggest challenge continues to be a severe shortage of workers, limiting our production output to meet demand. The second challenge is general availability of steel; the market is getting worse, and more production delays are expected as we gap out of needed material.” [Fabricated Metal Products]
- “Raw metals continue to be challenging, especially with the uncertain nature of tariffs being on and off again. New tariffs against Canada have drastically increased costs for capital expenses as well as assemblies.” [Electrical Equipment, Appliances & Components]
- “Fuel costs are still affecting transportation costs and the overall cost of goods. Beef costs remain high, with no relief in sight.” [Food, Beverage & Tobacco Products]
- “Higher interest rates slow down the growth of new construction projects; we also have to face up to the higher cost of components from overseas due to tariffs and freight rates. 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.” [Machinery]
- “Every month, we are faced with new headwinds created by this administration. This month, it is the trade war with Canada, which every day is getting worse — causing prices to go up and uncertainty that creates massive disruption. 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. The only thing that is predictable is the chaos that is created by these trade policies.” [Transportation Equipment]
The orders component rose 1.6 points in September to 55.3 after having declined 3.0 points in August. “Of the six largest manufacturing industries, five (Computer & Electronic Products; Chemical Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Machinery) reported increased new orders. Demand sentiment dropped again in September, with 1.7 positive comments for every negative comment; that ratio was 2-to-1 in August and 3.5-to-1 in July,”
The production component declined 1.6 points in September to 56.7 after having fallen 0.2 points in August. “Of the six largest manufacturing industries, five (Petroleum & Coal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; and Chemical Products) reported increased production. Panelists had a 1.6-to-1 ratio of positive to negative comments regarding output, down from August’s 2.2-to-1 ratio,” says Spence.
The delivery performance of suppliers to manufacturing organizations fell 0.3 point in September to 59.0 after having risen 0.4 point in August. This is the tenth consecutive month this index has been above 50.0. A reading above 50 indicates slower deliveries which presumably means that the economy in beginning to accelerate. A reading below 50 indicates faster deliveries and is associated with slower growth in the economy. It had been hovering between 50-53 for the past year but it has broken out to the upside. “The Supplier Deliveries Index registered 59 percent, 0.3 percentage point lower than August’s reading of 59.3 percent. Of the six big industries, five (Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products) reported slower supplier deliveries,” says Spence.
The employment index rose 1.5 points in September to 52.7 after having declined 1.6 points in August. ““Of the six big manufacturing industries, two (Computer & Electronic Products; and Transportation Equipment) reported higher levels of employment in September. The panelist comment ratio of hiring to managing/reducing head counts was 1.5-to-1,” says Spence.
The backlog of orders rose 4.6 points in September to 56.4 after having fallen 3.2 points in August. Ten industries reporting higher backlogs in September Three industries reported lower inventories. Five industries reported no change in backlog of orders in September This is a positive sign for factory output in the months ahead.
Customer inventory levels fell 1.2 points in September to 41.6 after having risen 2.1 points in August. Customers’ Inventories Index remained in “too low” territory.
With a small increase in orders and a small decline in customer inventories the ratio of orders to inventories was unchanged in September at 1.3. The 1.3 level for this index suggests that production should climb further in the months ahead.
The prices paid component jumped 6.8 points in September to 77.9 after having been unchanged in August. “The Prices Index reading is still being driven by (1) increases in steel and aluminum prices that impact the entire value chain, (2) tariffs applied to many imported goods and (3) increases in petroleum-based products as a result of the Middle East conflict. Higher prices were reported by 58.6 percent of respondents in September, up 12.4 percentage points from August’s 46.2 percent,” says Spence
GDP is expected to climb 3.5% in the third quarter. We are also looking for GDP growth of 2.6% in 2026 followed by 2.6% growth in 2027.
Stephen Slifer
NumberNomics
Charleston, S.C.
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