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In October, the U.S. manufacturing sector contracted for the eighth consecutive month and at a faster pace than the prior month, with the ISM Manufacturing^® PMI decreasing to 48.7% from 49.1% in September. On the other hand, all of the four demand indicators (New Orders, New Export Orders, Backlog of Orders and Customers’ Inventories) improved in October but are still in contraction territory. Meanwhile, the Production Index returned to contraction after growing in September, decreasing from 51% to 48.2%.

The New Orders Index contracted for the second consecutive month but at a slightly slower rate, rising 0.5 percentage points from September. The index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022. Of the six-largest manufacturing sectors, one—transportation equipment—reported an increase in new orders. Respondents continued to note concern about near-term demand, primarily driven by tariff costs and uncertainty.

The New Export Orders Index contracted for the eighth consecutive month but at a slower pace, 1.5 percentage points higher than September. The continued contraction is likely indicative of dampened demand amid ongoing trade tensions and policy uncertainty. Meanwhile, the Imports Index contracted for the seventh consecutive month but at a slightly slower rate, up 0.7 percentage points to 45.4% in October. Imports continued to contract as tariff pricing results in lower demand compared to prior months.

The Employment Index contracted for the ninth consecutive month but at a slightly slower pace than the prior month, up 0.7 percentage points from September to 46%. Of the six-largest manufacturing sectors, two—transportation equipment and food, beverage and tobacco products—reported increased employment. Companies continued to focus on layoffs and attrition to restrict headcounts due to uncertainty around near- to mid-term demand. For every comment on hiring, 3.4 respondents noted reduced headcounts.

The Prices Index decreased 3.9 percentage points to 58%, indicating raw materials prices grew for the 13th straight month in October, but at a slower pace. Of the six-largest manufacturing sectors, five—machinery; computer and electronic products; transportation equipment; chemical products; and food, beverage and tobacco products— reported increased prices. The increase continues to be driven by higher steel and aluminum prices impacting the entire supply chain, as well as the tariffs applied to most imported goods. Roughly 27.3% of companies reported paying higher prices, slightly down from 32.5% in September but still up from 21% in January.