US Manufacturing Grows in September Amid Supply Chain Challenges

The US Manufacturing PMI registered 55.4 in September, according to the Institute for Supply Management (ISM), marking the fourth consecutive month of expansion but slightly lower than August. The New Orders Index decreased but remained in growth territory. Supplier deliveries continued to slow down, and inventory contraction eased. ISM members indicated that COVID-19 and business growth were key themes, expressing concern about the absence of future economic stimulus policies. The report suggests continued growth in the manufacturing sector, albeit at a slightly slower pace than the previous month.

If economic recovery were a marathon, manufacturing would undoubtedly be one of the frontrunners. As a crucial engine of economic growth and a key source of technological innovation and employment opportunities, the manufacturing sector's performance offers valuable insights into the nation's economic health. The recently released Institute for Supply Management (ISM) September manufacturing report provides a window into the current state and future trajectory of U.S. manufacturing, revealing both encouraging signs and persistent challenges.

September ISM Report: Mixed Signals

The September Purchasing Managers' Index (PMI) registered 55.4, slightly below August's 56.0 but still well above the expansion threshold of 50. This marks the fourth consecutive month of manufacturing expansion. More encouragingly, September's PMI surpassed the 12-month average of 49.8% and represents the second-highest reading in nearly a year, trailing only August's figure. This data strongly suggests that the U.S. economy has now grown for 131 consecutive months—a remarkable achievement in itself.

However, a closer examination reveals that the road to recovery remains uneven. Supply chain bottlenecks, labor shortages, and demand-side fluctuations continue to hinder full manufacturing recovery—challenges that require careful analysis and strategic responses.

Sector Performance: A Tale of Two Trends

Among the 18 manufacturing sectors tracked by ISM, 14 reported growth in September, demonstrating broad-based recovery. The expanding sectors include:

Paper Products: E-commerce growth continues to drive packaging demand.
Wood Products: Strong housing market performance boosts demand.
Food, Beverage & Tobacco: Essential goods maintain stable demand.
Furniture & Related Products: Work-from-home trends spur demand.
Electrical Equipment & Appliances: Smart home adoption and infrastructure projects drive growth.
Nonmetallic Mineral Products: Infrastructure and real estate development fuel demand.
Fabricated Metal Products: Broad industrial applications tie performance to overall economic health.
Chemical Products: Industrial production and consumer goods drive demand.
Miscellaneous Manufacturing: Performance varies by specific products and markets.
Plastics & Rubber Products: Wide industrial applications reflect overall economic conditions.
Machinery: Industrial production and infrastructure projects boost demand.
Textile Mills: Benefits from apparel and home goods demand.
Computers & Electronics: Digital transformation and IT development spur growth.
Transportation Equipment: Automotive and aerospace industries drive demand.

Conversely, several sectors contracted in September:

Apparel & Leather: Pandemic-related consumer spending shifts reduced demand.
Printing: Digitalization trends continue to pressure the sector.
Petroleum & Coal Products: Pandemic and environmental policies impact energy demand.
Primary Metals: Global economic slowdown and trade tensions affect performance.

This sectoral divergence highlights the structural nature of manufacturing recovery, with some industries benefiting from specific trends while others face persistent headwinds.

Key Indicators: A Complex Picture

Beyond the headline PMI, other key indicators present a nuanced view of manufacturing conditions:

New Orders Index: Fell sharply from 67.6 to 60.4 (a 7.4% decline) but maintained growth for the fourth consecutive month. Despite the drop from August's 16-year high, readings above 50 indicate sustained demand strength.
Production Index: Declined modestly by 2.3% to 61.4, though still reflecting expansion for four straight months. Labor shortages and supply chain issues may have contributed to the slowdown.
Employment Index: Rose 3.2% to 49.6 but remained in contraction for the 14th consecutive month. While showing improvement, persistent labor shortages continue to constrain recovery.
Supplier Deliveries Index: Held steady at 59.0 (vs. 58.2 in August), indicating ongoing supply chain disruptions. Readings above 50 reflect slower delivery times due to transportation challenges and supplier difficulties.
Inventories Index: Increased 2.7% to 47.1, showing slower inventory depletion but remaining in contraction territory. Strong production and supplier challenges continue to limit inventory rebuilding.

Industry Perspectives: Pandemic and Growth Remain Central Themes

Comments from ISM members reveal sector-specific challenges and opportunities:

"Retail sales remain strong, but foodservice is down about 15% year-over-year. All our plants continue struggling with shift staffing due to COVID cases or employees exposed to infected individuals," noted a respondent from the Food, Beverage & Tobacco sector.

"Business has not begun to recover," reported a respondent from the Petroleum & Coal Products sector.

Expert Analysis: Surprisingly Strong Performance

Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, characterized the report as "surprisingly good":

"This is a very good performance, with expansion rates matching July-to-August levels. New orders remain exceptionally strong, export orders grew to 54.3, inventories stay low, and backlogs remain solid. Demand-side fundamentals look strong assuming stable conditions...Despite pandemic-related absenteeism and distancing protocols, manufacturing has adapted well. Employment approaches expansion territory after 14 months, and production has maintained robust levels above 57 for four consecutive months. Overall, this is an exceptionally positive report."

Fiore noted that supplier challenges—exacerbated by September's hurricanes and wildfires—show signs of gradual improvement, though incremental gains may be offset by continued natural disasters. He projected supplier delivery times could improve to about 57 in October, with inventories potentially rising to 49.

Price Pressures and Policy Concerns

The Prices Index rose 3.3% to 62.8, marking the third consecutive monthly increase. Fiore attributed this to suppliers passing along rising costs amid transportation challenges.

Looking ahead, Fiore expressed concern about the lack of pre-election fiscal stimulus:

"Post-Thanksgiving clarity on the presidential election should provide stability. However, the absence of stimulus before the election is deeply concerning. While consumer confidence improved in September, widespread layoffs and struggling sectors remain worrying. The greatest growth impediment remains Washington's inability to agree on continued stimulus measures. Removing all government support without replacement jeopardizes our 1.5-2% growth potential. While Q3 likely outperforms these levels and manufacturing emerges from its H1 recession, withdrawing fiscal support without alternatives poses the greatest threat."

Conclusion: A Challenging Path Forward

The September ISM report confirms that U.S. manufacturing continues its recovery, albeit amid significant challenges. Supply chain disruptions, labor shortages, and demand volatility persist, while strong new orders and improving employment conditions signal underlying strength. The election outcome and fiscal policy decisions will critically influence the sector's trajectory.

Sustained recovery will require:

Addressing supply chain bottlenecks through domestic capacity building and diversification
Resolving labor shortages via workforce training and competitive compensation
Supporting demand through targeted fiscal measures
Accelerating innovation to enhance productivity and competitiveness

These efforts will be crucial for maintaining manufacturing's leadership position in the economic recovery marathon and ensuring its continued contribution to national prosperity.