Manufacturing activity edges up as domestic demand drives growth
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US manufacturing activity ticked higher in October as growth in domestic orders helped counter ongoing weakness in global demand. According to the S&P Global Flash US Manufacturing PMI, the index rose from 52.0 in September to 52.2 in October, marking a two month high and continuing a nine out of ten month streak of expansion.
This steady improvement in headline figures masks an increasingly complex environment for manufacturers, many of whom are struggling to manage input costs and competitive pricing. October’s performance highlights a continued divergence between strong internal demand and lagging export performance.
Domestic demand strengthens while exports weaken
Manufacturing output expanded for the fifth straight month, driven primarily by increased domestic orders. In fact, new orders rose at their fastest pace in over a year and a half. The gains were largely attributed to the US market, with manufacturers seeing stronger inquiries and follow through on domestic contracts.
However, the picture was very different on the international front. Export orders for manufactured goods fell at the sharpest rate since February. Manufacturers reported notable declines in demand from both China and Europe, reflecting broader geopolitical and economic headwinds.
Inventories expanded slightly, but this was not due to proactive stockpiling. Instead, firms responded to falling backlogs by reducing input purchases. With less pressure on order fulfillment timelines, companies are now taking a more cautious approach to procurement and working capital.
Input costs high, pricing power limited
Input cost inflation continued to pose challenges, although the pace of increase slowed to its lowest level since February. Most firms attributed cost pressures to existing tariffs, which continue to affect a wide range of imported components and raw materials.
While selling prices for goods rose in October, the rate of increase was lower than in previous months. Competition and fragile demand made it difficult for companies to fully pass through their higher costs. The result has been margin compression across much of the sector.
Supplier delivery times also improved in October, signaling continued recovery in logistics and transportation networks. Shorter lead times indicate that previous bottlenecks are easing, although some manufacturers remain wary of potential disruptions due to global supply volatility.
Business activity grows, sentiment slips
The broader economy also saw gains. The US composite PMI, which includes both manufacturing and services, increased from 53.9 to 54.8 in October. That reading represents a three month high and the largest rise in new business recorded in 2025.
Yet despite the uptick in activity, optimism among manufacturers declined. Confidence fell to its second lowest point since June 2024. Firms cited the ongoing federal government shutdown and continued uncertainty around trade policy as key concerns. While there remains some hope that domestic production could benefit from future tariff adjustments, current conditions are not yet generating widespread confidence.
Outlook remains mixed
The data shows that US manufacturing is holding its ground, supported by resilient domestic demand. However, the simultaneous decline in exports, continued cost pressure and lack of pricing power suggest that risks remain on the horizon.
Manufacturers face a delicate balance between meeting growing domestic demand and managing profitability in the face of stiff competition and limited margin flexibility. For supply chain managers and procurement leaders, the signal is to stay agile. With backlogs easing and inventories under control, the focus may shift toward strategic sourcing and cost containment.
Sources:
Business Quarter