- Prior reading was 54.6
- New orders 55.3 vs 53.7 prior
- Employment 52.7 vs 51.2 prior
- Prices paid 77.9 vs 72.3 expected — highest since May
- Prior prices paid 71.1
The prices paid number is grabbing the market’s reaction in the immediate aftermath of the report as it soared. US 30-year yields are at the highs of the day, up 5.2 bps to 5.69%, the high of the day. That dynamic is also weighing on equity markets.
Prices paid:
Comments in the report:
- “Better performance was driven primarily by temporary market effects, including (1) geopolitical uncertainties, (2) customers bringing forward purchases, (3) delayed raw material price increases and (4) reduced competitor capacity. However, these factors do not signal sustained recovery: Structural challenges facing the chemical industry remain, including overcapacity, persistent pricing pressures and protectionist trade policies.” [Chemical Products]
- “Supply chain performance has improved compared to prior years, with lead times largely normalized. Cost pressures persist in select raw materials, transportation and labor categories, requiring continued focus on supplier management and cost control. We remain cautiously optimistic about business conditions over the next several quarters.” [Chemical Products]
- “The U.S. tariff schedule is providing challenges. Finding alternate sources of supply outside of China, local pushback on data centers in the U.S. and continuing material/component shortages are affecting business.” [Computer & Electronic Products]
- “Manufacturing activity remains stable, with a continued focus on cost optimization, supplier negotiations and supply base consolidation. We are actively evaluating alternative sources in several categories to improve supply resilience and reduce costs. While material availability has generally improved compared to prior periods, qualification requirements and supplier capacity constraints continue to influence sourcing decisions for certain critical materials and components. Capital and operational spending remain focused on productivity, efficiency and transformation initiatives.” [Computer & Electronic Products]
- “Orders have doubled yet again, and delivery times have also doubled, in the semiconductor, electronics and government sectors, with remaining sectors flat to down. Coupled with supply chain lead times and pricing pressures, the factory backlog has nearly doubled. 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.” [Machinery]
- “Order levels remain strong and elevated; we have orders through year-end at above forecast levels. Our biggest challenge continues to be a severe shortage of workers, limiting our production output to meet demand. The second challenge is general availability of steel; the market is getting worse, and more production delays are expected as we gap out of needed material.” [Fabricated Metal Products]
- “Raw metals continue to be challenging, especially with the uncertain nature of tariffs being on and off again. New tariffs against Canada have drastically increased costs for capital expenses as well as assemblies.” [Electrical Equipment, Appliances & Components]
- “Fuel costs are still affecting transportation costs and the overall cost of goods. Beef costs remain high, with no relief in sight.” [Food, Beverage & Tobacco Products]
- “Higher interest rates slow down the growth of new construction projects; we also have to face up to the higher cost of components from overseas due to tariffs and freight rates. Due to booming demand of AI and data centers, domestic steel capacity has been stretched and pushed. Higher steel costs each month increase our raw-material and finished-goods costs.” [Machinery]
- “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. Buying continues to get pushed out indefinitely as customers don’t want to spend on capital expenditures until there is more certainty of costs and demand. The only thing that is predictable is the chaos that is created by these trade policies.” [Transportation Equipment]
For background, the ISM manufacturing PMI is the oldest survey of its kind and still the first major piece of US data each month. It’s released at 10 am ET on the first business day of the month by the Institute for Supply Management, a trade group for purchasing professionals that was known as the National Association of Purchasing Management until 2001. The survey has been compiled in its current form since 1948, giving it one of the longest track records of any economic indicator.
The methodology is simple. ISM asks purchasing and supply executives at hundreds of manufacturing firms whether activity is better, worse or the same as the prior month across a series of categories. Those answers are turned into diffusion indexes, where 50 is the dividing line. Above 50 means more respondents reported improvement than deterioration; below 50 means the opposite. The figures are seasonally adjusted.
The headline PMI is an equal-weighted composite of five sub-indexes: new orders, production, employment, supplier deliveries and inventories. Supplier deliveries is inverted in spirit, as slower deliveries push the index higher, reflecting the idea that stretched supply chains usually signal strong demand. That quirk has occasionally flattered the headline, most notably during the pandemic.
ISM also publishes indexes that don’t feed into the headline, including prices paid, backlog of orders, new export orders, imports and customers’ inventories. Prices paid is closely watched as an early read on goods inflation and is often the most market-moving component after the headline.
Alongside the numbers, ISM publishes anonymous comments from respondents grouped by industry, which offer a qualitative snapshot of conditions in sectors such as chemicals, transportation equipment and machinery.
ISM notes that a PMI reading in the low 40s or higher is generally consistent with expansion in the broader economy, a reminder that manufacturing is a small slice of US output. A competing survey from S&P Global is released earlier in the day and often diverges.
This article was written by Adam Button at investinglive.com.