Factory Production Is Strongest Since 2021, but Input Costs Are Still Rising Broadly

U.S. manufacturing expanded for a 10th straight month in October, with factory production reaching its strongest level since November 2021.

The headline index rose to 55.5 in October, up 1.0 percentage point from 54.5 in September. Secondary market reporting put the consensus expectation at 54.6, so the print cleared expectations.

These are diffusion indexes, built from a survey of supply executives. A reading above 50 means more firms reported growth than decline. The distance above 50 shows how broad the growth is.

Production did the heavy lifting

The Production Index jumped to 59.0 in October, up 2.3 percentage points from 56.7 in September. That is its highest reading since November 2021, when it registered 60.5. Production has now expanded for 12 straight months.

All five subindexes that make up the headline index were in expansion in October. One more joined than in September, as inventories returned to growth. Five of the six largest manufacturing industries expanded during the month.

One Machinery respondent captured the strain behind the strength. "Explosive growth in the semiconductor and government/defense spaces has put us on our heels as we try to work through demand," the respondent said.

Orders and demand held up

The New Orders Index edged up to 55.5, a gain of 0.2 percentage point from September. New orders have grown for 10 straight months. The Backlog of Orders Index stayed in expansion at 54.6, down 1.8 percentage points.

Customers' inventories were again rated too low, at 41.6, unchanged from September. ISM treats that status as usually positive for future production. Factories hold lean customer stock, so new demand tends to become new orders.

Trade readings were modestly positive. New Export Orders rose to 51.2, up 0.3 percentage point. Imports rose faster, to 52.9, up 1.9 percentage points from September.

Hiring cooled slightly, and deliveries stayed slow

The Employment Index eased to 52.4, down 0.3 percentage point from 52.7 in September. Hiring still grew, just more slowly. Four of the six largest industries reported higher employment in October.

Supplier Deliveries rose to 59.1, up 0.1 percentage point. This index is inversed, meaning above 50 signals slower deliveries, not faster ones. Deliveries have now slowed for 11 straight months, a sign demand is straining supply lines.

The Inventories Index returned to expansion at 51.4, up 2.8 percentage points from September. Factories rebuilt some stock in October. That rebuild helped lift the headline index, alongside production and orders.

The cost problem did not go away

The Prices Index fell to 75.2, down 2.7 percentage points from 77.9 in September. That is still a very high breadth reading. It means far more factories paid more for inputs than paid less.

The prices index measures breadth, not size. A reading of 75.2 does not mean prices rose 75.2%. It means increases were widespread across respondents. Raw materials prices have now increased for 25 straight months.

In October, 53.1% of respondents reported paying higher prices, down from 58.6% in September. No industry reported paying lower prices overall. Sixteen industries reported paying more for raw materials during the month.

Chair Susan Spence tied the pressure to three drivers. She cited steel and aluminum increases that run through the whole value chain. She also cited tariffs on many imported goods, and petroleum-based product increases tied to the Middle East conflict.

Sentiment moved the other way from output. General sentiment worsened for a third straight month, ISM said. Only 34% of panel comments were positive, against 66% negative. Among negative comments, pricing volatility led at 62%, ahead of longer lead times at 41%.

What remains unknown

What remains unknown starts with pass-through. The survey shows factories paying more, broadly. It does not show how much of that cost reaches customer prices, or how much margins absorb. That split decides whether factory inflation stays a factory problem.

Also unknown is whether the production surge holds. October output was the strongest in nearly five years. Orders grew only slightly, and backlogs grew more slowly. One strong production month does not prove a durable step-up in demand.

The report also cannot settle the hiring path. Employment growth slowed even as output accelerated. Whether factories add staff to match production, or stretch existing crews, is not answered here.

What to watch next

What to watch begins Wednesday, November 4, when ISM reports its Services index for October. Services cover most of the economy, so that print tests whether factory strength is part of a broader pattern. A similar prices reading there would widen the cost story.

Next is the October jobs report on Friday, November 6. It will test the survey's softer hiring signal against payroll data. The two series measure different things, so a gap between them would need explaining, not averaging.

Watch the prices breadth most of all. If the Prices Index cools toward the 60s, the cost problem is easing. If it holds in the 70s while production stays strong, factories face growth with margin pressure into year-end.