A leading indicator shows that over the past month, the US manufacturing sector continued its expansion momentum, but cost and supply chain pressures facing businesses have clearly intensified.

On Thursday, October 1, Eastern Time, the Institute for Supply Management (ISM) reported that the US September ISM Manufacturing Index edged down to 54.5 from 54.6 in August, below the market expectation of 55.0, marking the second consecutive monthly decline after the index hit a four-year high in July. Earlier that day, the final reading of the US September S&P Global Manufacturing PMI came in at 54.8, a new high since May 2022, above the August final reading of 53.9 but below the early September reading of 57.0.

Although continuing to pull back, the ISM Manufacturing Index has now remained above the 50 boom-or-bust line for nine consecutive months, marking a sustained expansion in manufacturing activity since the start of 2026. The sub-indices highlighted upward inflation pressures: the price index measuring companies' raw material costs surged to 77.9 from 71.1 in August, the highest level in four months since May.

Following the data release, concerns intensified over a resilient economy coupled with re-emerging inflation pressures. US equities declined, with the Dow Jones extending losses after turning negative in early trading, while the S&P 500, which had opened slightly higher on Thursday, and the Nasdaq, which had opened higher, both turned lower. The US Treasury market also weakened, with 30-year Treasury bonds leading price declines and yields rising at the front of the curve.

Manufacturing Index Expands for Nine Consecutive Months, Orders Clearly Rebound

ISM data showed that the September manufacturing PMI was 54.5, down only 0.1 percentage point from August. Although it did not rebound to the expected 55.0, this marks the ninth consecutive month of expansion for US manufacturing and the longest stretch of sustained expansion since 2022.

ISM stated that the September manufacturing PMI corresponds to the 23rd consecutive month of growth for the overall US economy. Based on historical relationships, a September manufacturing PMI of 54.5 roughly corresponds to real GDP annualized growth of 2.4%.

Looking at the sub-indices, manufacturing demand actually strengthened somewhat.

The new orders index rose to 55.3 from 53.7, marking a relatively rapid pace of expansion in recent times and remaining in expansion territory for nine consecutive months. The order backlog index surged to 56.4 from 51.8, the highest since February this year. Although the production index fell to 56.7 from 58.3, it still maintained relatively strong growth.

Employment also showed improvement. The manufacturing employment index rose to 52.7 from 51.2 in August, remaining in expansion territory for the third consecutive month and marking the longest stretch of consecutive employment growth since 2022.

This means that the slight decline in the September manufacturing PMI was not due to a sudden weakening of demand, but rather reflected a slowdown in production growth. The rebound in orders and backlogs indicates that factories still have ample work on hand.

After the release of the S&P Global Manufacturing PMI, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented: "The pace of growth in US manufacturing accelerated again in September." He noted that with new orders surging, factories significantly increased output and hiring, pushing the PMI to a four-year high. He said:

"The growing volume of outstanding orders and increasingly busy supplier operations indicate that capacity is becoming stretched as companies work to meet demand from both consumer and business markets.

This phenomenon is particularly pronounced in the investment and production of machinery and equipment, and is often linked to growth in artificial intelligence (AI)-related spending.

Precautionary inventory building driven by concerns over prices and supply chains also continues to support demand, although the persistent loss of export orders remains disappointing."

Cost Pressures Suddenly Intensify as Raw Material Price Index Surges to Four-Month High

What truly alarmed the market was the price indicator.

The September ISM manufacturing price index rose sharply by 6.8 percentage points from August to 77.9, approaching the level of 78.3 seen in March this year during the early days of the Iran conflict. This also marks the 24th consecutive month of raw material price increases.

ISM stated that 58.6% of surveyed companies in September reported rising raw material prices, up from 46.2% in August. Sixteen manufacturing industries reported raw material price increases, with no industry reporting price declines.

The price increases were quite broad-based, including aluminum, copper, steel, fuel, freight, electronic components, semiconductors, and memory components. Among these, rising steel and aluminum prices are affecting the entire manufacturing value chain, while tariffs and higher oil product prices caused by the Middle East conflict are further driving up business costs.

Meanwhile, supply chain pressures persist.

The supplier deliveries index was 59.0 in September. Although slightly improved from 59.3 in August, it still indicates slower delivery speeds and marks the 10th consecutive month of slower supplier deliveries. In the ISM survey, major industries including computers and electronic products, machinery, food, transportation equipment, and chemicals all reported slower supplier delivery speeds.

Media noted that strong domestic demand, particularly AI infrastructure expansion and corporate inventory restocking, is helping US manufacturing maintain momentum, but rising energy costs and supply chain disruptions are adding to inflation pressures.

"Strong Demand Plus High Costs" Combination Weighs on Markets

From a market perspective, the September ISM report released a rather complex signal.

On one hand, new orders, order backlogs, and employment all improved, indicating that US manufacturing has not shown clear signs of cooling. On the other hand, the rapid rise in the price index and continued slow supplier deliveries mean that cost pressures facing businesses are re-accumulating.

This is why a PMI reading that was only 0.1 percentage point lower than the previous reading but significantly below expectations did not become a simple "economic cooling positive." The market is more focused on the price sub-index: manufacturing demand remains resilient while input costs are clearly rising, a combination that could make inflation pressures harder to dissipate quickly.

After the data release, US stocks that had opened slightly higher turned lower, while US Treasuries continued to face pressure, with 30-year Treasury bonds leading price declines. Against the backdrop of long-end Treasury yields already at elevated levels, the renewed rise in the manufacturing price index undoubtedly further reinforced market concerns about inflation and interest rates remaining high.

Reuters also noted that the September US manufacturing performance shows that demand remains resilient, supported by factors such as AI infrastructure investment and corporate inventory restocking, but energy prices and supply chain pressures are creating new inflation challenges.

In terms of industry performance, ISM data showed that 12 of 18 manufacturing industries grew in September, including electrical equipment, primary metals, and machinery. Only printing and related support activities, and textile mills, contracted. Five of six major industries — computers and electronic products, food and beverages, transportation equipment, machinery, and chemicals — expanded.

Therefore, the September ISM manufacturing data does not present a simple "manufacturing cooling" picture: the demand side still has support, but cost-side pressures are clearly mounting. For a market already highly focused on inflation, energy prices, and long-end Treasury yields, the latter may be the more tradeable signal following this data release.