ISM Manufacturing Index Dips to 54.5 in September, Still Shows Expansion
By TopHolding Editorial · Wednesday, September 30, 2026 at 8:00 PM
Photo: Wikideas1 / CC BY-SA 4.0 · Wikimedia Commons
First Trust Portfolios reports that the ISM Manufacturing Index moderated to 54.5 in September, a slight decline but marking the ninth consecutive month of expansion for the sector. The report highlights mixed activity measures and an acceleration in inflation pressures, alongside improvements in new orders and employment.
According to Nate Gerze, Economist, Brian S. Wesbury, Chief Economist, and Robert Stein, Deputy Chief Economist at First Trust Portfolios, the ISM Manufacturing Index decreased to 54.5 in September. This figure fell short of the consensus expectation of 55.0, though levels above 50 still indicate expansion in the manufacturing sector. This marks the third-fastest pace for the index since 2022, despite being the second consecutive monthly decline.
First Trust's economists note that while the headline index saw a slight dip, manufacturing activity has now expanded for nine consecutive months. They attribute this encouraging trend to factors such as AI-related capital investment, reshoring of production, and increased defense procurement. Looking at the detailed components, the new orders index increased to 55.3 from 53.7, and the employment index rose to 52.7 from 51.2, suggesting manufacturers are beginning to add workers after nearly three years of contraction. Conversely, the production index declined to 56.7 from 58.3, and the supplier deliveries index also edged down to 59.0 from 59.3. The report also highlights that order backlogs have grown for each month in 2026, reaching a seven-month high of 56.4.
The most significant concern raised by First Trust is the acceleration of inflation pressures, with the prices paid index increasing to 77.9 in September from 71.1 in August. The report indicates this rise is influenced by increases in steel and aluminum prices, tariffs on imported goods, and higher petroleum-based product costs due to the Middle East conflict. Wesbury and his team suggest this strengthens their expectation for the Federal Reserve to hike short-term interest rates in December. However, they also project that "inflation will come down faster than most investors expect" due to below-trend growth in the M2 money supply.
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Key terms
1. ISM Manufacturing Index: A monthly indicator of the health of the manufacturing sector, based on a survey of purchasing managers. A reading above 50 indicates expansion.
2. Prices Paid Index: A component of the ISM Manufacturing Index that measures the prices manufacturers are paying for raw materials and other inputs.
3. M2 money supply: A measure of the total amount of money in circulation, including cash, checking deposits, and easily convertible near money.
Source: Nate Gerze, CFA – Economist, Brian S. Wesbury ––Chief Economist, Robert Stein, CFA Dep. Chief Economist, First Trust Portfolios — Data Watch. Read the original at ftportfolios.com.
