Manufacturing recovery meets headwinds from costs and policy
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US manufacturing showed tentative signs of stabilization in September, but new orders and employment stayed soft as factories continued to absorb the effects of tariffs on imported goods. The Institute for Supply Management reported that its manufacturing PMI rose to 49.1 last month from 48.7 in August. A reading below 50 still indicates contraction, marking the seventh straight month of decline.
Production strengthened slightly, though the gains were uneven. The sector continues to face uncertainty tied to policy shifts and global trade disruptions that have complicated supply planning and hiring decisions.
The slow turn toward recovery
The ISM’s September data showed production reaching 51.0, signaling expansion even as overall activity remained constrained. Manufacturers continue to balance output against limited demand, while volatility in inputs and higher borrowing costs keep capital investment subdued.
The broader index staying under 50 underscores how fragile conditions remain. The lack of official government economic reports, delayed by a recent funding lapse, has left executives relying on industry surveys to gauge momentum.
The new orders index slipped to 48.9 from 51.4 in August, while export orders fell near 43.0, pointing to weak international demand. Backlog orders remain soft, suggesting limited forward momentum.
Employment continues to trail, with many firms managing payrolls through attrition or delayed hiring. ISM respondents reported that layoffs and unfilled openings are the main tools used to control costs as companies adjust to slower sales.
Tariffs keep pressure on manufacturers
Trade policy remains a defining obstacle for factory operators. The most recent tariffs include a 25 percent duty on heavy-duty trucks, a 50 percent tariff on imported kitchen cabinets and vanities, and a 30 percent levy on upholstered furniture. While these duties aim to protect domestic producers, they also raise material costs and reduce supply flexibility.
A 2025 Thomson Reuters tariff survey found that most manufacturers are facing higher prices and greater administrative complexity as a result. To offset this, some firms are relocating suppliers, nearshoring operations, or reclassifying components to limit tariff exposure.
Supplier delivery times lengthened again, with ISM’s index rising to 52.6 from 51.3. In typical growth cycles this would signal strong demand, but in the current environment it reflects continued shipping delays and customs congestion.
Prices paid by manufacturers eased slightly to 61.9 from 63.7 but remain elevated, keeping cost pressures high across production lines. These conditions have encouraged firms to hold more inventory, tying up working capital and increasing storage costs.
Analysts estimate that tariff-related disruptions since 2018 have extended average delivery times by about three weeks and raised production expenses by roughly eight percent. Those added costs remain a significant drag on competitiveness.
The employment drag and what it signals
The employment subindex stayed in contraction territory near 45.3. Although this was marginally better than August’s 43.8, it reflects ongoing caution in hiring. Labor shortages persist for technical and skilled positions, but manufacturers are hesitant to expand staff until orders show consistent improvement.
To manage output with fewer workers, companies are adopting automation and process efficiencies. Some are consolidating production lines or outsourcing specialized work to maintain flexibility while limiting fixed labor costs.
Looking ahead, ISM projects manufacturing revenues will rise about 4.2 percent in 2025, with modest job growth of roughly 0.8 percent. Capacity expansion is expected to reach around 4 percent as companies invest in digital systems, robotics, and artificial intelligence. Deloitte’s latest outlook echoes those figures, noting that the next wave of competitiveness will depend on automation, local sourcing, and sustainable operations.
Even so, challenges remain. Persistent tariffs, elevated financing costs, and uneven consumer demand continue to weigh on margins. Many manufacturers are reconfiguring logistics networks to reduce exposure to global shocks and to shorten lead times.
September’s modest improvement in the PMI offers a tentative sign that the sector may be finding its footing. Factories appear to be stabilizing after months of contraction, but a lasting rebound will depend on policy clarity, steadier supply lines, and a broad return of demand both at home and abroad.