US manufacturing production grows at its fastest pace since 2021
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US manufacturing expanded for the 10th consecutive month in October, as the ISM manufacturing PMI rose 1 percentage point to 55.5%, according to the Institute for Supply Management’s report published on Nov. 2. A reading above 50% means more manufacturers reported growth than contraction.
The Production Index climbed 2.3 percentage points to 59%, its highest reading since November 2021. New orders edged up to 55.5%, 12 of 18 manufacturing industries reported growth, and all 5 of the subindexes that feed into the headline PMI were in expansion, one more than in September. ISM estimates that a PMI at this level corresponds to annualized real GDP growth of about 2.7%.
Below the headline, the picture is less comfortable. Employment slipped to 52.4%, prices paid for raw materials rose for the 25th straight month, and supplier deliveries slowed for the 11th month running.
The purchasing executives who answer the survey were also gloomier than the numbers suggest. Negative comments outnumbered positive ones by about 2 to 1, and overall sentiment worsened for the third month in a row.
Production is growing faster than manufacturing employment
The gap between the Production Index at 59% and the Employment Index at 52.4% is one of the clearest signals in the October report. Many more manufacturers are increasing output than are adding to their workforce.
Factory employment is still growing, for the 4th month in a row, and respondents’ comments on hiring ran at 1.8 positive for every negative. Of the 18 industries surveyed, 8 reported higher employment, led by plastics and rubber products, wood products, and machinery. Another 5 reported cuts, including chemical products and paper products.
Several explanations could sit behind the gap, and the ISM data does not settle which matters most. Manufacturers may be pushing existing plants and shifts harder before committing to new headcount. Some may be getting more output per worker through automation and process improvements. Others may simply be wary of hiring when cost pressures and policy uncertainty make next year hard to plan.
For plant leaders, the distinction matters. Output growth that depends on overtime and stretched equipment is harder to sustain than growth built on productivity gains.
Costs and lead times are weighing on purchasing managers
Prices remain the biggest pressure point. The Prices Index eased 2.7 percentage points to 75.2%, but 53.1% of respondents still reported paying more for raw materials. In all, 16 industries reported higher prices and none reported a decrease.
Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, linked the pressure to 3 factors: steel and aluminum price increases that ripple through the value chain, tariffs on a wide range of imported goods, and higher costs for petroleum-based products tied to the conflict in the Middle East.
Those themes ran through the negative comments. Pricing volatility appeared in 62% of them, longer lead times in 41%, tariffs in 25%, and the Iran war in 21%, with most comments citing more than one factor.
Lead times are stretching too. The average lead time for production materials rose by 3 days to 87 days. One machinery respondent described items that once took 4 weeks now taking 50, and a part that doubled in price in 6 months.
AI and data-center demand is straining key inputs
Respondents tied part of the demand behind October’s growth to data centers and other AI infrastructure, and that demand is tightening supply of the materials those projects need.
Machinery respondents pointed to data centers, mission-critical infrastructure, municipal water projects, and mining as sources of strong business. Another described rapid growth from semiconductor and defense customers that has left the company struggling to keep up with orders.
ISM’s commodities list shows where the strain is falling. Electronic components, electrical components, memory, printed circuit boards, copper, steel, and aluminum products were all reported in short supply. Aluminum has appeared on the list of commodities rising in price for 35 consecutive months, and copper for 16.
A respondent in miscellaneous manufacturing said any commodity consumed by AI and data centers is short on both supply and price, and that adding up next year’s tariff, AI-related, and geopolitical cost increases makes budgeting sobering.
That creates an uneven effect across the sector. Manufacturers selling into data-center and electrical infrastructure supply chains are seeing strong orders. Those that simply buy the same metals and components face higher costs and longer waits without the matching demand. A transportation equipment respondent reported customers stuck in wait-and-see mode, with no sign of the usual fourth-quarter spending as year-end budgets run down.
The question for the coming months is whether output growth can hold while hiring stays modest and input costs stay high. Customers’ inventories are still rated too low, which ISM says is usually positive for future production. Whether manufacturers turn that demand into more jobs, or keep stretching existing capacity, may depend on whether steel, aluminum, and component supply loosens. ISM’s next report, covering November, is due Dec. 1.
Source:
Institute for Supply Management
