ISM manufacturing prices paid climb to 77.9 as the index holds at 54.5

The Institute for Supply Management said on Thursday that new orders and material prices both rose in September, while its manufacturing index was little changed.

Released at 10:00 a.m. Eastern time, the index was 54.5, down 0.1 point from 54.6 in August, and still above 50. Economists polled by Reuters had expected 55.0. It was the ninth straight month of expansion, after 10 months of contraction.

Prices reached more firms

The prices index is this survey's inflation signal. It rose to 77.9 from 71.1, up 6.8 points, the highest reading since May, when it was 82.1. It had eased to 73.0 in June and held at 71.1 in July and August.

The figure counts firms, not the size of any price increase. In September, 58.6% of respondents reported higher prices, up from 46.2% in August. Another 38.6% reported no change, and 2.8% reported lower prices.

Raw-material prices have risen for 24 straight months. Of 18 industries, 16 reported paying more for raw materials, and no industry reported paying less. ISM listed no commodity as down in price.

ISM said the reading was close to 78.3 in March, at the start of the Iran war. The group said steel and aluminum, tariffs on imported goods, and petroleum-based products tied to the Middle East conflict were still driving it.

A supply executive in electrical equipment, appliances and components said new tariffs against Canada had "drastically increased costs for capital expenses as well as assemblies."

ISM says that when this index holds above 52.8, over time, it has generally lined up with rising producer prices for the materials factories use.

Orders rose, production slowed

Susan Spence, chair of ISM's Manufacturing Business Survey Committee, said that of the five indexes that make up the headline, only new orders and employment grew faster than in August. ISM described the pace as growing, but slower.

New orders rose to 55.3 from 53.7, a ninth straight month above 50. The backlog of orders rose to 56.4 from 51.8. Orders from abroad cooled to 50.9 from 53.2, and stayed above 50.

Employment rose to 52.7 from 51.2, a third month of expansion.

"Order levels remain strong and elevated; we have orders through year-end at above forecast levels. Our biggest challenge continues to be a severe shortage of workers, limiting our production output to meet demand," a supply executive in fabricated metal products said.

Production slowed to 56.7 from 58.3, and was still above 50.

Factories' own inventories fell to 48.6 from 50.6, below 50. The share reporting higher inventories fell to 11.4% from 14.7%, and the share reporting lower inventories rose to 13.0% from 11.7%. Most firms, 75.6%, reported no change.

Customers' inventories, at 41.6, remained at a level ISM calls too low, as they have for 24 months.

Twelve industries reported growth, down from 15 in August. Five of the six largest expanded.

Taken together, orders are coming in faster than factories are filling them. The headline did not rise with them, because production slowed and inventories fell below 50.

A supply executive in chemical products said better performance was driven "primarily by temporary market effects," including "customers bringing forward purchases," and that those factors "do not signal sustained recovery."