Business & Industry
U.S. Manufacturing Holds in Expansion as Input Costs Accelerate
The September factory index stayed above the growth threshold, with stronger orders and hiring offset by a sharp rise in prices paid.
Growth continues
The Institute for Supply Management's manufacturing index registered 54.5 in September, down one tenth of a point from August but still above the 50 line that separates expansion from contraction. Reuters reported that the index has remained in growth territory throughout 2026. Manufacturing represents roughly 9.4 percent of the U.S. economy, so the survey is not a complete measure of national output, but it offers a fast reading of orders, production, employment and supply conditions.
Orders and backlogs strengthened
The new-orders component rose to 55.3 from 53.7, and order backlogs also increased. Those readings point to continued demand and work already in the pipeline. Investment tied to artificial-intelligence infrastructure and inventory rebuilding has supported factories, although activity may not be evenly distributed across industries. A strong headline can therefore mask a divide between companies connected to data-center construction and firms more exposed to energy, trade or consumer weakness.
Prices are the warning
The survey's prices-paid measure jumped to 77.9 from 71.1, signaling faster increases in input costs. Slower supplier deliveries, expensive energy and disrupted trade routes can all contribute. The index does not translate directly into consumer inflation, because companies may absorb costs, improve efficiency or change sourcing. But sustained factory-gate pressure can eventually reach business investment and retail prices, making the result relevant to the Federal Reserve and to corporate earnings.
Factory employment improves
The employment component increased to 52.7 from 51.2, suggesting manufacturers added workers in September. That direction is consistent with the week's very low unemployment-claim filings, though the two measures cover different concepts. Survey responses indicate hiring intentions, while government payroll data estimate actual employment. Friday's jobs report will test whether the improvement appears in official factory payrolls and whether gains extend beyond a few capital-intensive industries.
A mixed signal for policy
For Washington, the report supplies evidence for both sides of the economic debate. The administration can point to expansion, orders and employment. Critics can point to elevated input prices and vulnerability outside the AI investment boom. Monetary policymakers must decide whether supply pressure is temporary or persistent enough to affect inflation expectations. The most responsible reading is conditional: factories grew in September, but the cost of sustaining that growth increased.
Reporting note: This article draws on public records and verified reporting; material claims are attributed in the text.