US manufacturing activity remained in expansion during September, but a sharp acceleration in input costs strengthened the inflation signal coming from the factory sector. The Institute for Supply Management’s manufacturing purchasing managers’ index edged down to 54.5 from 54.6 in August, missing the 55.0 consensus estimate. Readings above 50 indicate expansion. The survey’s prices-paid index climbed to 77.9 from 71.1, reaching its highest level since May and exceeding the 72.3 estimate cited by InvestingLive.
The headline index was nearly unchanged, but the underlying demand measures improved. New orders rose to 55.3 from 53.7, while Reuters reported that order backlogs also increased. The employment index advanced to 52.7 from 51.2, showing that factory payroll conditions continued to expand rather than contract. Reuters said strong domestic demand, including spending tied to artificial-intelligence infrastructure and inventory replenishment, helped sustain manufacturing activity during the month.
The cost side of the survey was less comfortable. Reuters linked the rise in input prices to higher energy costs and supply-chain disruption connected with the US-Israeli conflict with Iran. Supplier delivery times remained slow, adding to concerns that manufacturers face both firmer demand and difficulty securing materials promptly. The combination of expanding new orders, higher backlogs and a prices index deep in expansion territory suggests factories are experiencing broad cost pressure rather than a simple decline in output.
September’s result extends a period of manufacturing growth. ISM reported that the sector had already expanded for eight consecutive months through August, when the PMI stood at 54.6. In that earlier report, all five components used directly in the headline PMI — new orders, production, employment, supplier deliveries and inventories — were in expansion territory. September’s 54.5 reading therefore represents broadly steady activity, even though it fell just short of economists’ forecast.
The stronger employment component also arrives immediately before the monthly US jobs report. Reuters said economists expect manufacturing payrolls to increase by 10,000 in September. The broader consensus calls for nonfarm payrolls to rise by 90,000 after a 162,000 increase in August, while the unemployment rate is expected to remain at 4.1% for a third consecutive month. Earlier on Thursday, initial jobless claims fell to 197,000, reinforcing the picture of limited layoffs even as hiring remains measured.
What it means for traders: the split between a slightly softer headline PMI and a much stronger prices-paid index gives currency and gold markets two different signals to weigh. The 54.5 headline confirms that US factories are still expanding, while the 77.9 price reading points to persistent upstream inflation. For EUR/USD and USD/JPY, continued manufacturing growth combined with elevated input costs can keep US interest-rate expectations central to dollar pricing. For XAU/USD, the same inflation signal must be assessed alongside movements in Treasury yields and the dollar. A later retreat in prices paid would reduce the inflationary message, whereas further increases would reinforce it.
Attention now turns to the September payroll report and to whether other inflation indicators confirm the factory survey’s cost signal. Traders will also watch the next ISM services report because services account for a larger share of US economic activity. The key question is whether September’s jump in manufacturing prices was concentrated in energy and disrupted supply chains or becomes part of a broader pattern across the economy.