The price moderation emerged as a rare point of agreement between two surveys that otherwise painted starkly different pictures of the manufacturing sector’s health.
Inflation Cooling Despite Tariff Pressures
The Institute for Supply Management’s Prices Paid Index fell to 58.0 in October from 61.9 in September, indicating input costs are still rising but at a significantly slower pace. Similarly, S&P Global reported that while input price inflation remained “historically elevated,” October marked the lowest rate since February.
Both surveys attributed ongoing cost pressures primarily to tariffs, but the deceleration suggests some relief may be emerging in supply chains.
With the federal government shutdown continuing, private sector surveys like the ISM and S&P Global PMI reports have taken on heightened significance for businesses, investors, and policymakers seeking real-time economic intelligence in the absence of official Census Bureau, Bureau of Labor Statistics, and other government data releases.
Beyond the inflation picture, however, the two surveys diverged sharply on the overall state of U.S. manufacturing. The ISM Manufacturing PMI fell to 48.7 from 49.1, marking the eighth consecutive month of contraction (readings below 50 indicate declining activity). The index missed economist expectations of 49.3.
“In October, U.S. manufacturing activity contracted at a faster rate, with contractions in production and inventories,” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee. Production notably fell back into contraction after a brief improvement in September.
Only two of the six largest manufacturing industries—food, beverage and tobacco products, and transportation equipment—expanded during the month. ISM reported that 58 percent of the manufacturing sector’s GDP contracted in October.
The S&P Global US Manufacturing PMI registered 52.5, up from 52.0 in September, indicating a third consecutive month of expansion. The survey reported production increasing at a “solid pace” and new orders growing at their fastest rate in 20 months, driven primarily by domestic demand.
New export orders declined in both surveys. S&P Global reported exports declined for a fourth consecutive month and to the greatest degree since July, with sales falling to key markets including Canada, China, Europe and Mexico. The survey explicitly attributed the decline to tariffs, stating “tariffs reportedly remained the primary driver behind the drop in exports.”
S&P Global’s Chris Williamson noted that “tariff policies being increasingly blamed both on rising export losses and import supply chain disruptions.”
Business confidence remained subdued in both surveys. S&P Global reported optimism falling to its lowest level since April, with “US trade policy uncertainties” cited as “a big factor in dampening business spirits.”
ISM respondents also described challenges related to trade policy. “Business continues to remain difficult, as customers are canceling and reducing orders due to uncertainty in the global economic environment and regarding the ever-changing tariff landscape,” said one ISM respondent from the chemical products sector.
The ISM report noted that tariffs and their impact on prices and demand “feature highly in respondents to the survey.”
Both surveys showed weak labor market conditions in manufacturing, with ISM’s employment index at 46.0 (contraction) and S&P Global reporting only “modest” hiring growth for a third successive month.
A closer examination of S&P Global’s survey reveals potential concerns beneath its expansion reading. The report documented an unprecedented surge in finished goods inventories—the steepest increase in over 18 years of survey history.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, called this “the most worrying” development in the report, noting it was “widely linked to weaker than anticipated sales to customers, especially in export markets, which could trigger a downshifting of production in the coming months unless demand revives.”
Williamson added that “companies have also become less optimistic about the year ahead, with sentiment back down close to the gloomy levels seen around the April tariff announcements.”
He noted particular weakness in consumer-focused industries: “Business confidence among producers of consumer goods is now down to its lowest for two years as firms growing increasingly worried about household spending in the US and falling sales to consumers in export markets.”
This inventory buildup—where production exceeds sales—often presages future production cuts, potentially explaining why ISM’s data already shows production contracting.
ISM’s Spence noted that while there had been “a chain reaction of one-month index improvements” starting with new orders in August and flowing to production in September, “these short gains have not appeared to translate into sustained growth for the sector, a reflection of continuing economic uncertainty”
The ISM data showed that October’s reading “corresponds to a change of plus 1.8 percent in real gross domestic product (GDP) on an annualized basis,” suggesting the manufacturing sector, while contracting, is not dragging down the broader economy, which requires a PMI reading below 42.3 to indicate overall economic contraction.
The sharp divergence between the surveys reflects differences in sampling and methodology. S&P Global surveys approximately 600 manufacturing firms, while ISM polls over 400 companies. The different industry compositions, geographic distributions, and weighting methodologies may explain the conflicting signals.
With inflationary pressures moderating but demand uncertainty persisting, manufacturers face a challenging environment navigating trade policy impacts, weakening exports, and economic uncertainty.
The restoration of government economic data releases would provide additional clarity, but until then, these private surveys—despite their differences—offer the most timely glimpses into the manufacturing economy’s direction.
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