ISM Manufacturing PMI Rises to 55.5% in October as Input Prices Stay High

U.S. factory activity grew at a faster pace in October, but businesses are still paying sharply higher prices for materials. The Institute for Supply Management (ISM) said on Monday, November 2, that its Manufacturing PMI rose to 55.5% in October from 54.5% in September. That beat the consensus forecast of 54.6%, according to Trading Economics. A reading above 50% signals expansion, and October marked the 10th straight month of growth for manufacturing.

What happened

The gain was broad. ISM reported that 12 of the 18 manufacturing industries it tracks grew in October. Key parts of the report:

• Production rose to 59.0% from 56.7%, its 12th consecutive month of expansion.
• New Orders edged up to 55.5% from 55.3%.
• Employment slipped to 52.4% from 52.7%, still in growth territory.
• Inventories moved back into expansion at 51.4%, up from 48.6%.
• Supplier Deliveries stood at 59.1%, meaning deliveries slowed for an 11th straight month.
• Prices fell to 75.2% from 77.9%. That is a slower rate of increase, not falling prices: raw material costs have now risen for 25 consecutive months.

The survey’s tone was weaker than the numbers. Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, noted that sentiment worsened for a third straight month, with about two-thirds of respondent comments negative. Among those negative comments, 62% cited price volatility, 41% longer lead times and 25% tariffs. Respondents pointed to steel and aluminum costs, tariffs on imported goods and petroleum-based inputs tied to the Middle East conflict as the main drivers of higher prices. Some also said customers were placing only short-term orders.

Why it matters for small businesses

A growing factory sector usually supports jobs and spending in the wider economy, which can help demand for small firms that sell to consumers or other businesses. ISM said a PMI at this level is consistent with continued growth in the overall economy.

The price side is the bigger concern for many owners. When manufacturers pay more for metals, plastics and packaging, those costs tend to move down the supply chain to wholesalers, makers and online sellers. Slower supplier deliveries can also mean longer waits for materials during the busy holiday season.

Persistent price pressure also matters for interest rates. The Federal Reserve held its benchmark rate at 3.75% to 4% last week, and some officials have said they see a case for raising rates. Readings like this one feed into that debate, which affects the cost of business loans and credit lines.

What you can do now

1. Check your input costs. Compare what you paid for key materials and packaging this fall with last year, and update your cost sheets.
2. Revisit your prices. If margins are shrinking, adjust prices on new products first. Our guide to pricing handmade products for profit walks through the math.
3. Order early. With delivery times stretching, place restock orders for holiday and January needs sooner than usual.
4. Plan cash for higher costs. A 13-week cash flow forecast helps you see whether rising supply bills will squeeze your bank balance.
5. Watch this week’s data. The October jobs report on Friday will add more detail on how the economy is holding up.

This brief is for general information only and is not financial or investment advice.