A U.S. manufacturing survey released on Monday highlighted some encouraging signs regarding inflation, revealing that both main purchasing managers’ indexes have indicated a slowdown in price increases for October. This could provide a hopeful signal for Federal Reserve policymakers, especially as official economic indicators remain out of reach due to the ongoing federal government shutdown.
This drop in prices represents a notable area of consensus between two surveys that presented contrasting views on the manufacturing sector’s health.
Inflation declines amid tariff stress
The Institute for Supply Management’s price paid index registered at 58.0 in October, down from 61.9 in September, suggesting that while input costs are rising, the rate of increase is slowing. Similarly, S&P Global noted that input price inflation remains “historically elevated,” yet it hit its lowest level since February this October.
Both surveys attribute persistent cost pressures mainly to tariffs, but the recent slowdown indicates there might be some relief within the supply chain.
With the federal government shutdown ongoing and no official statistics from the Census Bureau or Bureau of Labor Statistics, private surveys like ISM and S&P Global PMI have gained significance for businesses, investors, and policymakers looking for real-time economic insights.
However, beyond the inflation landscape, the surveys diverged significantly on the overall state of U.S. manufacturing. The ISM Manufacturing PMI dipped from 49.1 to 48.7, marking the eighth straight month of contraction (index values below 50 indicate declining activity). This result fell short of economists’ predictions of 49.3.
“U.S. manufacturing activity contracted more sharply in October due to reductions in production and inventory levels,” noted Susan Spence, chair of the ISM Manufacturing Research Committee. Specifically, production that had recently shown signs of improvement in September fell back into contraction.
Out of the six largest manufacturing industries, only two experienced growth in October: food, beverages, tobacco products, and transportation equipment. ISM reported an overall manufacturing GDP contraction of 58% during this period.
The S&P Global U.S. Manufacturing PMI rose to 52.5 from 52.0 in September, indicating three consecutive months of expansion. The survey indicated production is increasing at a “solid pace,” with new orders rising at the fastest rate in 20 months, largely driven by domestic demand.
Export orders, on the other hand, declined in both reports. S&P Global noted a drop in exports for the fourth consecutive month, marking the steepest fall since July, with sales in important markets like Canada, China, Europe, and Mexico dwindling. The study specifically pointed to tariffs as a significant factor in this export decline, declaring, “tariffs are reportedly the main reason for reduced export volumes.”
“Tariff policies are increasingly being blamed for both rising export losses and disturbances in import supply chains,” remarked Chris Williamson from S&P Global.
Business confidence remains generally low across both surveys. S&P Global cited “uncertainty about U.S. trade policy” as a significant factor hindering business confidence, leading to a drop in optimism to its lowest level since April.
ISM respondents noted issues stemming from trade policy, with one participant in the chemical products sector remarking on difficulties as customers cancel or reduce orders due to a shaky global economic environment and fluctuating tariffs. The ISM report highlighted how tariffs and their effects on prices and demand were major concerns for those surveyed.
Both surveys indicate weak conditions in the manufacturing labor market, with ISM’s employment index at 46.0 (indicating contraction) and S&P Global observing “moderate” employment growth for the third month in a row. Further exploration of S&P Global’s findings revealed worrisome signs beneath its growth projections, with an unprecedented rise in finished goods inventories—the fastest uptick in over 18 years.
Chris Williamson labeled this situation as “most worrying” in his report, linking it to weaker-than-expected customer sales, particularly in export markets, and cautioning that it might lead to production slowdowns in the near future unless demand picks up. He also noted that businesses have grown less confident about the upcoming year, with sentiment nearing the pessimistic levels seen during the April tariff announcements.
“Confidence among consumer goods producers is now at its lowest point in two years, with growing concerns about diminishing consumer sales in U.S. household spending and export markets,” he added, particularly highlighting vulnerabilities in consumer-centric industries.
The accumulation of inventories (where production exceeds sales) often signals potential future production cuts, which could explain why the ISM report is already reflecting declines in production.
The problem of momentum
According to ISM’s Spence, while there were “a cascade of improvements in the index over the month,” starting with new orders in August and spilling into production in September, it’s clear that “these short-term gains don’t seem to be fostering sustainable growth in the sector and mirror ongoing economic uncertainty.”
Data from ISM showed an October reading equivalent to a positive 1.8% change in real gross domestic product (GDP) on an annualized basis. This indicates that though the manufacturing sector is contracting, it isn’t dragging down the overall economy, with a PMI below 42.3 required to signal economy-wide contraction. The stark differences between the two studies stem from variations in sampling and methodology. S&P Global monitors around 600 manufacturing firms, while ISM focuses on more than 400, and discrepancies in industry composition, geographic distribution, and weighting methods may likewise clarify these conflicting signals.
Even with the relief from inflationary pressures, uncertainty around demand lingers, leaving manufacturers in a tough spot due to the impacts of trade policies, weak exports, and overall economic uncertainty. More clarity may emerge once government data releases resume, but for now, these private surveys provide the most timely glimpse into the manufacturing economy’s trajectory, despite their differences.
