September’s 54.5 manufacturing PMI comes with inflation concerns

U. S. manufacturing activity remained in expansion territory for a ninth straight month in September, according to a Thursday report. However, manufacturing supply executives surveyed continued to cite “pricing pressures” as a key concern.

Rising transportation costs—partly due to elevated diesel fuel prices—and elevated input costs due to tariffs were among the headwinds. A 54. 5 reading for the Institute for Supply Management’s Manufacturing PMI was just 10 basis points below the August level and 40 bps shy of the consensus expectation.

(A reading above 50 for the index signals expansion, while one below 50 indicates contraction.) A sustained level above 47. 5 signals that the overall economy is growing. The September reading was consistent with annualized real GDP growth of 2. 4%, the report said.

The new orders index—an indicator of future activity—also expanded for a ninth consecutive month, logging a 55. 3 reading, 1. 6 percentage points higher than August. Five of the six largest manufacturing industries tracked—computer and electronics; chemical products; transportation equipment; food and beverage; and machinery—reported increases in new orders.

But demand sentiment around news orders slid further to a ratio of 1. 7-to-1 positive-to-negative comments. The ratio was 3. 5-to-1 in July. However, a sustained reading of 52 or higher for the subindex is consistent with a growing manufacturing order book. Customers’ inventories (41. 6) remained “too low,” sliding 1. 2 points sequentially.

“A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production,” the report said. But a rising interest rate environment (along with extant goods cost inflation) could detract some firms from carrying elevated stock levels. The backlog of orders dataset (56. 4) expanded 4.

6 points in the month as production (56. 7) expanded for an 11th straight month, but was down 1. 6 points from August. Manufacturing employment (52. 7) was in growth territory for a third straight month, up 1. 5 points sequentially.

The ISM’s supplier deliveries index, which measures delivery times to manufacturing facilities, has signaled slowing delivery times and supply chain constraints for 10 consecutive months. The 59 reading was 30 bps lower sequentially. (This ISM subindex is the only one that is inverted.) Overall sentiment from respondents skewed 40% positive and 60% negative.

The split was 42%-58% in August. Pricing volatility, tariffs, the Iran war and longer lead times were the most cited sticking points. Cost inflation was the primary concern. The dataset’s prices index jumped 6. 8 points to 77. 9. “Higher prices” were reported by 58. 6% of respondents, 12.

4 points higher than in August, as raw materials prices moved higher for a 24th straight month. The average commitment lead time for capex was 176 days in September, five days longer than in August. LTL tonnage on the rise, sector in early phase of recovery The industrial economy typically accounts for two-thirds of less-than-truckload revenue.

The ISM dataset leads inflections in LTL volumes by approximately three months. Third-quarter updates from public carriers showed year-over-year tonnage growth has continued to accelerate on a cumulative basis since first turning positive in March.

Further, Old Dominion (NASDAQ: ODFL) reported an acceleration in y/y yield growth in August, both with and without fuel surcharges, even as higher shipment weights presented a modest headwind. Like other carriers, Old Dominion recently pulled forward its annual general rate increase on various tariff codes.

Old Dominion kicks off the LTL earnings season on Oct. 28, reporting third-quarter results ahead of the market open. Why it matters? The ISM dataset provides key macroeconomic indicators that directly impact logistics, procurement and capacity planning. Continued manufacturing expansion serves as a leading indicator for LTL demand.

More FreightWaves articles by Todd Maiden: XPO opens new terminals in Phoenix, Kansas City markets Old Dominion pulls forward 4. 9% GRI as LTL carriers accelerate rate hikes Truckload carriers: Capacity exodus growing, not slowing The post September’s 54. 5 manufacturing PMI comes with inflation concerns appeared first on FreightWaves.