–ISM’s Spence: Firms Jittery about Not Being Able to Rely on Stead Economic Policy
By Max Sato
(MaceNews) – U.S. manufacturing activity expanded for the ninth straight month in September, thanks to a cautiously optimistic business outlook, but Washington’s wars on the trade front and in the Middle East are keeping various costs high and choking supply deliveries.
The purchasing managers index compiled by the Institute for Supply Management dipped 0.1 point to 54.5 after slumping a full percentage point to 54.6 in August and rising 2.3 points to a more than four-year high of 55.6 in July, data released Thursday showed. The index is well above the 52.6 level in January, when it jumped 4.7 points to indicate the manufacturing sector’s first expansion in 12 months, but the survey also showed that a clear majority of the respondents remained negative about the status quo.
“In September, U.S. manufacturing activity remained in expansion territory,” ISM Manufacturing Business Survey Committee Chair Susan Spence said in a statement. “Of the five subindexes that make up the PMI, only new orders and employment grew faster than the previous month.”
The latest survey showed that 40% of the comments were positive, down from 42% in August but still above 38% in July, 34% in June and 25% in May, while 60% were negative, up from 58% in August but down from 62% in July, 66% in June and 69% in May. This resulted in a 1-to-1.6 ratio of positive to negative sentiment, worsening from 1-to-1.4 in August, when it improved slightly from 1-to-1.6 in July. It is still better than 1-to-1.9 in June and 1-to-2.7 in May.
Among the negative comments, pricing volatility was mentioned in 46% of them in September, down from 57% in August, but those on tariffs rose further to 34% from 29% in August and 18% July. The share of the Iran war was unchanged at 30%. The percentage of increasing supply lead times fell to 21% after rising to 46% in August from July’s 22%. Most comments mentioned multiple factors, so the numbers do not add up.
What stood up in the September report is a 6.8-point surge in the prices index to a four-month high of 77.9. It is below its recent peak of 84.6 reached in April in the wake of the Iran war (the highest since May 2022) but it is nonetheless troubling for many firms.
A chemical producer summed up the sentiment among some manufacturing industries that are propping up overall sector activity. “We remain cautiously optimistic about business conditions over the next several quarters.” But the same company also pointed to the sector-wide challenges: “Cost pressures persist in select raw materials, transportation and labor categories, requiring continued focus on supplier management and cost control.”
An escalated trade conflict between the United States and Canada, whose economies are closely interlinked, is adding to the woes of many industries that are already reeling under the drag from the Iran war and existing high tariffs imposed by the Trump administration.
“Canada tariffs have impacted cross-border costs and left our supply chain team scrambling – those supply chains took years to develop and nurture – hurting the very lead times government buyers are concerned about,” a machinery maker said.
After bilateral trade talks broke down, Washington on Aug. 22 slapped a 50% tariff on C$27.6 billion of Canadian goods, ranging from dairy products and alcoholic beverages to lumber and cement. In response, Ottawa imposed counter-tariffs on C$27.6 billion worth of goods from the U.S., effective Sept. 8, targeting steel and aluminum, dairy, appliances, agricultural equipment, pulp and paper, plastics and electronics. In certain sectors, such as steel and aluminum, existing counter-tariffs jumped to 50% from 25% to match U.S. rates.
“New tariffs against Canada have drastically increased costs for capital expenses as well as assemblies,” a firm from the electrical equipment, appliances and components told the ISM.
A transport equipment maker also complained about the negative impact of the protectionist U.S. trade policy: “Every month, we are faced with new headwinds created by this administration. This month, it is the trade war with Canada, which every day is getting worse – causing prices to go up and uncertainty that creates massive disruption.”
On the question of how the overall activity remains in growth territory while overwhelming numbers of firms have made negative comments every month, Spence blamed stiff U.S. import duties and the lingering war against Iran for the uncertain business outlook.
She told reporters that “general nervousness about not being able to rely on stead economic policy” is a major headwind for manufacturers. “This nervousness creates uncertainty and chaos,” she said.
On the up and down pattern in new orders, Spence told Mace News that this uneven pace of growth stems from various factors. “Respondent comments suggest uncertainty around tariffs, prices and geopolitics are affecting purchasing decisions,” she said in email. “Some customers are bringing purchases forward, which can boost orders in one month and leave a less exciting period afterward.”
“It’s difficult to say how long this will continue,” she said. “We are watching for more consistent growth across industries before interpreting any single month’s improvement as a sustained acceleration.” The new orders index was above the neutral line of 50 for the ninth consecutive month in September after four months in contraction. It has shown a zigzag pattern, rising 1.6 points to 55.3 after slumping 3.0 points to a five-month low of 53.7 in August and rebounding 0.7 point to 56.7 in July on a 0.8-point dip to 56.0 in June.
On the bright side, the employment index rebounded 1.5 points to 52.7 in September after falling 1.6 points to 51.2 in August and rising 3.1 points in July to 52.8, the highest since 54.2 in August 2022. The panelist comment ratio of hiring to managing versus reducing head counts was 1.5-to-1 in the latest survey, marking a slight pickup after worsening to 1.3 to 1 in August from 1.5 to 1 in July and 1.8 to 1 in June.
In recent months, companies have blamed the global AI boom for computer chip shortages and slower supplier deliveries while households and businesses are concerned about cyberspace security around the use of artificial intelligence.
Spence told reporters that the manufacturing sector does not appear to be applying the technology as much as the service sector, adding that she hasn’t seen particular comments among ISM firms on concerns about security, energy prices or water supply caused by AI projects.
Later she told Mace News, “On balance, I see AI as a positive opportunity for manufacturing supply management. It can help teams analyze information faster, improve planning, identify supplier risks and reduce routine administrative work.”
“But there can also be inaccurate outputs, meaning supply managers need to have strong reviewing and validation practices to mitigate problems,” she said.
The five sub-indexes that make up for the PMI (the previous month’s figures in parentheses):
New orders 55.3 (53.7) +1.6 points. In expansion for the ninth straight month. It follows a 3.0-point drop to 53.7 in August, which was the lowest since 53.5 in March. The index recorded a 9.7-point jump in January to 57.1, the highest since 59.7 in February 2022.
Production 56.7 (58.3) -1.6; in expansion for the 11th month in a row but down for the second straight month after surging 6.3 points in July to hit the highest since 60.5 in November 2021. It has been fluctuating month to month after rising 5.2 points in January 2026 to 55.9, which was the highest since 58.1 in February 2022.
Employment 52.7 (51.2) +1.5. The index is above the neutral line of 50 for the third straight month, indicating resilient labor conditions amid rising costs. It popped into expansion territory for the first time in 33 months in July, when it rose 3.1 points to 52.8, the highest since 54.2 in August 2022.
Supplier deliveries 59.0 (59.3) -0.3. Delivery performance of suppliers to manufacturing organizations was slower for the 10th consecutive month. The index stood at 60.6 in both April and May this year, which is the highest since 65.7 in May 2022 (above 50 means slower deliveries).
Inventories 48.6 (50.6) -2.0. The index fell below the neutral line of 50 after being above 50 in the previous three months. In June, the index rose 1.5 points to 51.4, marking its first expansion in 14 months and hitting the highest level since 52.7 in March 2025.
Among other sub-indexes:
Prices 77.9 (71.1) +6.8. After being unchanged in August, the index posted its largest increase since March, when it rose 7.8 points. In July, it fell 1.9 points following June’s 9.1-point plunge to 73.0, the largest drop since 18.5 points in July 2022. The index remains elevated after rising 6.3 points to 84.6 in April 2026 to reach the highest since 87.1 in May 2022. It indicates raw materials prices increased for the 23rd straight month. The upward pressure on prices is driven by increases in steel and aluminum prices that impact the entire value chain, tariffs applied to many imported goods and increases in petroleum-based products as a result of the Middle East conflict, the ISM said.