Manufacturers' prices index jumps to 77.9 as steel, components and freight costs surge: what September's ISM report means for sourcing

The details

The ISM Manufacturing PMI was 54.5 in September, nearly unchanged from 54.6 in August and the ninth straight month of expansion. Demand is firming: new orders rose to 55.3 and order backlogs to 56.4, a seven-month high.

A supplier deliveries reading above 50 means deliveries are slowing; they have slowed for 10 straight months.

Prices. 59% of respondents paid higher prices, up from 46.2% in August, and raw material prices have risen for 24 straight months. Respondents cited steel and aluminum, tariffs and petroleum-based costs tied to the Middle East conflict. ISM listed no commodities as falling in price.

Rising in price: aluminum, copper, electrical and electronic components, freight, fuel, packaging, resins, semiconductors, steel and zinc.

In short supply: electrical and electronic components, memory products, printed circuit boards and several categories of steel.

Lead times. Capital equipment averaged 176 days, up five days; production materials 84 days, unchanged; MRO supplies 49 days, up one. A machinery maker said AI and data center demand is “stretching domestic steel capacity,” and a fabricated metals producer said worker shortages and steel availability were limiting output.

Sentiment. 60% of respondent comments were negative. Of those, 46% cited price volatility, 34% tariffs, 30% the war with Iran and 21% longer lead times.

Which industries are growing. Twelve of 18 manufacturing industries grew in September, led by electrical equipment, appliances and components; nonmetallic mineral products; primary metals; plastics and rubber products; computer and electronic products; and fabricated metal products, according to Distribution Strategy Group’s summary of the report. Transportation equipment, machinery and chemical products also expanded. Only printing and textile mills contracted. Five of the six largest industries reported new-order growth, and backlogs rose in computer and electronic products, transportation equipment, food and beverage, and machinery. The recovery follows a 10-month contraction that left the PMI at 47.9 at the end of 2025.

Customers are running lean. ISM’s customers’ inventories index fell to 41.6 from 42.8, meaning manufacturers judge their customers’ stock as too low. Eleven industries said so, including primary metals, computer and electronic products, electrical equipment, fabricated metals, plastics and rubber, machinery and wood products. Twelve industries reported slower supplier deliveries. Low customer inventories plus rising orders usually means restocking demand ahead, which keeps pressure on the same supply chains that are already slow.

How to read the numbers

ISM’s indexes are diffusion indexes built from survey answers. A reading above 50 means more respondents reported an increase than a decrease. That makes them a measure of how widespread a change is, not how large it is:

• Prices at 77.9 means a large majority of purchasing managers paid more in September than in August. It does not mean prices rose 77.9%.
• Supplier deliveries at 59.0 is read the other way around: above 50 means deliveries are getting slower, which usually signals tight supply.
• Inventories at 48.6 means more manufacturers cut stock than built it. Lean inventories plus slower deliveries is the combination that leads to shortages when demand picks up, and new orders and backlogs both rose in September.

What the lead times mean for ordering

Lead times turn directly into order dates. Using ISM’s September averages, a team that needs capital equipment installed by the end of June 2027 should have the order placed by about the start of January, 176 days earlier, before allowing any time for approvals, engineering or installation. Production materials at 84 days need about three months of cover, and MRO supplies at 49 days about seven weeks. These are our calculations from ISM’s averages, and your suppliers’ actual quotes may be longer.

Where the pressure is, by category

This is our read of ISM’s lists combined with our Cost Pressure Monitor.

What procurement teams should do

• Prepare for increase requests. Ask suppliers to tie increases to specific cost drivers and published indexes, not a flat percentage.
• Extend forecasts on short items. For components, memory and PCBs, give suppliers longer visibility and confirm allocations.
• Re-check safety stock. With capital equipment at 176 days, plan capex purchases earlier.
• Separate tariff from material cost. Make suppliers show each component of an increase.

How to respond to a price increase letter

Supplier letters citing “market conditions” will follow a report like this one. A consistent response keeps the conversation on cost drivers:

1. Acknowledge, don’t accept. Confirm receipt and ask for the supporting cost breakdown.
2. Ask for the drivers. Which materials, by how much, and which published index or supplier quote shows it.
3. Check the share. Only the share of price driven by that material should move.
4. Check the timing. Has the supplier already passed through earlier increases, and are any inputs now easing?
5. Agree a mechanism. Where the case is fair, convert the increase into an index-linked term that also comes down.

This is our recommended approach. Our Cost Pressure Monitor gives you the producer price trend for 12 categories to check claims against.

What to watch next

• October’s ISM report, released the first business day of November, for whether prices keep climbing.
• Steel availability, as AI and data center demand competes with manufacturing.
• Energy, where the Iran conflict keeps petroleum-based costs elevated.

The bigger picture

Demand is recovering while supply is tight, which gives suppliers pricing power. Procurement teams that can show cost-driver data and offer volume visibility will negotiate better than those that respond to each increase as it comes.