Factory input-price pressure jumps while orders keep growing
ISM’s manufacturing prices index rose to 77.9 in September, even as its factory activity index held near August’s level.
Persistent
What changed?
The Institute for Supply Management’s September manufacturing survey put its Prices Index at 77.9, up 6.8 points from 71.1 in August. Its overall Manufacturing PMI was 54.5, almost unchanged from 54.6, while new orders increased to 55.3 from 53.7 and order backlogs rose to 56.4 from 51.8.
Manufacturing activity has been in expansion territory for nine months. Respondents cited diesel, metals, freight, packaging and electronic components among items increasing in price. The Prices Index is a diffusion measure of how widely prices are rising, not a 77.9% inflation rate.
Why does it matter?
A factory can have healthy orders and still face worsening margins if materials, freight and energy reprice faster than customer contracts. Growing backlogs also raise the cost of delays when suppliers are less predictable.
The September rise in the price index is material, but the persistence of price pressure across earlier months is the stronger trend signal. Conditions will differ sharply by product mix and purchasing terms.
Who is most exposed?
Fabricators buying steel, copper or resins; electronics and machinery producers with component constraints; and manufacturers committed to fixed-price customer orders.
What should businesses watch next?
October ISM prices and supplier-delivery indexes, quoted lead times, freight and diesel charges, and the difference between new-order growth and realized margins. Check whether purchase-order escalators actually cover the items now rising.
Trend check: Nine months of factory expansion with persistent price pressure; the September cost-index jump is an acceleration within that longer pattern.
Related Industry Intelligence: Manufacturing