Key Highlights

  • The ISM Manufacturing PMI rose to 55.5 in October from 54.5, above forecasts of 54.5 to 54.6.
  • The Production index jumped 2.3 points to 59.0, the highest reading since November 2021, as factories lifted output.
  • The Prices Index eased to 75.2 from 77.9 but stayed elevated, with aluminum, copper and diesel costs still rising.
  • Supplier deliveries slowed for an 11th straight month, and 66% of survey commentary was negative.

Factory Activity Strengthens

US manufacturing activity picked up in October. The Institute for Supply Management (ISM) said its Manufacturing Purchasing Managers' Index rose to 55.5 from 54.5 in September, above forecasts of 54.5 to 54.6. The reading, released on Monday, November 2, 2026, marks the second fastest pace of expansion in nearly four years.

The PMI has stayed above the 50 threshold that separates growth from contraction throughout 2026. Manufacturing accounts for about 9.4% of the US economy.

Output and Orders Lead the Gain

Production drove the improvement. The Production Index rose 2.3 percentage points to 59.0 from 56.7, the highest reading since November 2021. New orders expanded slightly faster, with the index at 55.5 compared with 55.3 in September, and exports also rose.

Factory inventories increased, with the Inventories Index up 2.8 points to 51.4. The government's advance GDP report showed Business inventories rebounded in the third quarter after being drawn down for five straight quarters. Employment kept growing, though more slowly: the Employment Index edged down to 52.4 from 52.7, slightly above the forecast of 52.0.

Which Industries Grew

Twelve industries reported growth in October, including transportation equipment, electrical equipment, appliances and components, machinery, primary metals, textile mills, and computer and electronic products. Three industries reported contraction: paper products, printing and related support activities, and nonmetallic mineral products.

Activity is being driven by consumer spending and business spending on artificial intelligence, according to the survey. The government reported last week that domestic Demand grew at its fastest pace in more than five years in the third quarter, when the economy expanded at a 3.4% annualized rate after 2.2% in the April to June period.

Supply Chains and Input Prices

Supplier deliveries slowed for an 11th straight month. The Supplier Deliveries Index inched up to 59.1 from 59.0, and a reading above 50 indicates slower deliveries. Aluminum, copper, electrical and electronic components, and memory chips remained in short supply. Respondents said commodities consumed by AI and Data Center construction are under strain for both supply and pricing.

Strained supply chains meant factories continued to pay more for inputs. The Prices Index eased to 75.2 from 77.9 in September, a level that remains high. Prices continued to rise for aluminum, copper, diesel fuel, and electronic and memory components. Manufacturers also cited higher Commodity and energy prices tied to the war with Iran, and a recent escalation in the Trade War with Canada, as constraints.

Sentiment Weakens Despite Stronger Activity

Susan Spence, who chairs the ISM Manufacturing Business Survey Committee, said "general sentiment got worse for a third month in a row." She reported that 66% of respondent commentary was negative, with pricing Volatility dominating the downbeat views, followed by longer lead times, tariffs and the war.

Makers of fabricated metal products said customers are unwilling to commit beyond the shortest terms given the uncertainty. Transportation equipment makers said customers are holding back and are surprised by the high price of equipment quotes. Machinery makers said explosive growth in semiconductors and government and defense spending is straining their ability to work through demand.

Fed and Economic Backdrop

The PCE price index rose 3.6% from a year earlier in September, according to government data released last week. The Federal Reserve left its benchmark overnight rate in a range of 3.75% to 4.00% on Wednesday, while acknowledging that Inflation "remains elevated." Economists expect the Central Bank to raise borrowing costs in December, and they expect inflation to run above the Fed's 2% target into 2027.

Economists cautioned that higher interest rates and falling household income adjusted for inflation would weigh on manufacturing next year, especially in segments not exposed to AI spending. They said AI Investment is expected to remain strong, but a further shift in AI sentiment, which has worsened in recent weeks, could weigh on investment plans, and tighter financial conditions could affect the parts of manufacturing not tied to AI.

What to Watch Next

Items on the calendar include the next ISM Manufacturing PMI report, the Prices Index relative to 75.2, supplier deliveries and the supply of aluminum, copper and memory chips, the Employment Index near 52.4, the path of the Production Index after its jump to 59.0, and the Federal Reserve's December meeting.