Manufacturing PMI Update: Is the Factory Sector Growing or Shrinking?

October 22, 2026 | ATN Trade & Finance

The short answer is growing — and growing faster than at any point since 2022. Both major PMI surveys of US manufacturing came in well above the 50-point expansion threshold in September, joining Eurozone and Chinese factories in a synchronized upswing. But beneath the headline expansion sits an uncomfortable subplot: input price pressures are surging to multi-year highs, driven by tariffs, oil, and supply chain delays that are worsening, not easing.

ISM Manufacturing PMI: 54.5% — Ninth Straight Month of Expansion

The Institute for Supply Management's Manufacturing PMI for September 2026 came in at 54.5%, released October 1 — down just 0.1 point from August's 54.6%, and the sector's ninth consecutive month above 50 following a 10-month contraction that ended in late 2025. ISM notes this reading corresponds to approximately 2.4% annualized real GDP growth.

Demand indicators were the bright spot. New Orders jumped 1.6 points to 55.3%, the Backlog of Orders surged 4.6 points to 56.4%, and Customer Inventories remained at 41.6% — classified as "too low," which typically signals future production needs to accelerate to restock downstream shelves. Employment rose 1.5 points to 52.7%, its third consecutive month of growth, with hiring comments outnumbering headcount-reduction comments by a ratio of 1.5 to 1.

Production stayed in expansion at 56.7%, though it moderated 1.6 points from August. Twelve of 18 manufacturing industries reported expansion; only Printing & Related Support Activities and Textile Mills contracted.

The Price Problem: Biggest Monthly Jump in the Report

The number that most demands attention is the Prices Paid Index: 77.9%, up a striking 6.8 points from August's already-elevated 71.1%. That is the largest single-month gain in the ISM report's current cycle, and it lands at levels not seen since 2022. ISM's survey committee chair directly attributed the spike to steel and aluminum costs, tariffs on raw inputs, and petroleum-based product increases tied to the Strait of Hormuz conflict.

No commodities were reported as declining in price. Respondents across industries flagged the same themes: one fabricated-metal manufacturer put it plainly — "raw metals continue to be challenging, especially with the uncertain nature of tariffs being on and off again." TD Economics called price pressure "the clearest concern in the report," noting that the combination of tariffs, metals costs, energy disruption, and constrained supply is complicating the inflation outlook and limiting the scope for rate cuts. Sixty percent of respondent comments across the September survey were negative, with pricing volatility, tariffs, and the Iran conflict cited most often — an unusual pairing with an overall expansion reading of 54.5%.

S&P Global Flash PMI: 57.0 — A 52-Month High for Manufacturing

S&P Global's Flash PMI for September, released September 23, told an even stronger story. The US Manufacturing PMI hit 57.0%, up 3.1 points from August's 53.9% — a 52-month high and the fastest improvement since May 2022. Manufacturing output registered 56.7%, also a 53-month high. The Composite PMI (manufacturing plus services) reached 58.4%, a 62-month high, which S&P Global chief business economist Chris Williamson estimated implies annualized output growth of roughly 5% — "the greatest expansion since early 2015, excluding the post-lockdown rebound." The October flash reading from S&P Global is due tomorrow, October 23, and will be closely watched given the high bar September set.

All five manufacturing sub-indices rose on the S&P Global survey. New orders grew at the fastest pace in nearly four and a half years, employment expanded at the greatest extent since February 2021, and supplier delivery times lengthened to the most significant degree since July 2022 — the last a sign that demand is straining supply chains again. Input cost inflation rose to its highest since October 2022.

Global Picture: Eurozone and China Also in Expansion

The US is not alone. The Eurozone manufacturing PMI for September 2026 (final reading) came in at 52.9%, a 52-month high, with production and new orders expanding at the fastest pace since early 2022. Italy, a manufacturing bellwether for southern Europe, crossed back above 50 at 50.4% after months of contraction.

China's Caixin Manufacturing PMI for September reached 52.1%, a near five-month high and above the 51.7% consensus estimate. The reading was supported by production and new orders both rising, with Goldman Sachs economists attributing the recovery partly to targeted policy support — though they cautioned the stimulus remains selective rather than broad-based. Overseas tariff exposure, including the US Section 301 forced-labor duties that took effect July 23, remains an identified risk for China's export-oriented manufacturers.

What to Watch

Two near-term data points will shape the PMI narrative through year-end. S&P Global's October flash reading tomorrow (October 23) will indicate whether September's surge was a high-water mark or the beginning of a new range. The ISM Manufacturing PMI for October will be released November 3. The key question in both reports will not be the headline — continued expansion looks probable — but whether the Prices Paid Index stays elevated or accelerates further as energy costs and tariff pressures continue feeding through to factory inputs.

What this means: The factory sector is in its strongest expansion since 2022 by most measures, with demand signals — new orders, backlogs, and depleted customer inventories — pointing toward continued output growth. For importers and manufacturers sourcing US-made inputs or running domestic production, the message is that capacity is tightening and lead times are lengthening. The price environment, however, is the complication: a Prices Paid Index approaching 78% in the ISM survey is not compatible with the inflation outlook the Federal Reserve needs to justify any near-term easing. The expansion is real, but it is running hot in a way that may force difficult trade-offs between growth and cost discipline heading into 2027.

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Manufacturing PMI Update: Is the Factory Sector Growing or Shrinking?

Manufacturing PMI Update: Is the Factory Sector Growing or Shrinking?

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