US Factories Post Fastest Growth in Years as Manufacturing Gauge Tops Forecasts

U.S. factory output accelerated in October at its fastest pace in nearly five years, according to data released Monday by the Institute for Supply Management, offering fresh evidence that American manufacturers are shaking off a drawn-out slump even as tariffs and elevated input costs continue to squeeze margins.

The ISM Manufacturing PMI rose to 55.5% last month, up a full percentage point from September's 54.5% and above the roughly 54.5% to 54.6% that economists had expected. A reading above 50% signals expansion. October marked the tenth consecutive month the gauge has been in growth territory, following a stretch of contraction earlier in the recovery, and the broader U.S. economy has now expanded for 24 straight months by ISM's reckoning.

A broad-based pickup

The strength was concentrated in production, which jumped 2.3 points to 59.0%, a level ISM data show has not been matched since late 2021. New orders edged up to 55.5% from 55.3%, new export orders rose to 51.2%, and import activity climbed to 52.9% from 51.0%, pointing to firms restocking components and raw materials. Inventories jumped 2.8 points to 51.4%, and supplier deliveries slowed further to 59.1%, a sign that vendors are still struggling to keep pace with order books.

Not every subindex improved. Employment slipped slightly to 52.4% from 52.7%, suggesting hiring continued but at a more cautious clip, and the backlog-of-orders index fell nearly two points to 54.6%. Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said plainly in the group's release that "in October, U.S. manufacturing activity remained in expansion territory," noting that the overall economy "expanded for the 24th month in a row."

• Manufacturing PMI: 55.5% (up from 54.5% in September)
• Production: 59.0% (up 2.3 points; best reading since 2021)
• New orders: 55.5% (up from 55.3%)
• Employment: 52.4% (down from 52.7%)
• Prices paid: 75.2% (down from 77.9%, but still historically elevated)

Tariffs and a distant war still show up in the cost data

The report's prices index eased to 75.2% from 77.9% but remained near the top of its historical range, a reminder that input-cost inflation has not gone away even as its pace of increase slows. ISM's survey of purchasing managers found that among respondents offering negative comments about current conditions, 62% cited pricing volatility, 41% pointed to longer lead times, 25% named tariffs on imported goods, and 21% referenced the ongoing U.S.-Iran conflict as a source of uncertainty in their supply chains. One panelist in the primary metals sector was quoted in the release describing shortages and cost pressure in blunt terms: "Material shortages abound. Fuel remains high. Uncertainty remains constant." A machinery-sector respondent struck a different note, saying demand "remains strong, largely driven not only by data centers and mission critical infrastructure" — an indication that AI-related capital spending is filtering through to traditional industrial orders.

The report lands against a backdrop of broader economic resilience. The Commerce Department's advance estimate of third-quarter GDP, published by the Bureau of Economic Analysis last week, showed the economy growing at a 3.4% annualized rate, with real final sales to private domestic purchasers up 4.9% — among the strongest quarters in years, driven in part by consumer spending and business investment tied to artificial-intelligence infrastructure.

Who is affected

The sectors reporting the strongest growth in October included machinery, computer and electronic products, transportation equipment and chemicals — four of the six largest manufacturing industries by ISM's measure — according to the trade group's own breakdown. That spread suggests the gains are not confined to a single pocket of the industrial economy, from capital-goods makers benefiting from data-center construction to materials producers still wrestling with tariff-driven cost increases. Workers in those industries saw mixed signals: production and new-order strength point to fuller plants and factory schedules, but the softer employment reading indicates many manufacturers are meeting demand with existing headcount rather than aggressive new hiring.

"In October, U.S. manufacturing activity remained in expansion territory."

Financial markets treated the data as a sign of underlying economic strength. Gold, which had been testing resistance near $4,000 an ounce, pulled back from session highs after the release, as traders weighed the prospect that robust growth reduces the urgency for the Federal Reserve to ease policy further, even with inflation still running above target. Analysts covering the move said solid activity readings diminish gold's safe-haven appeal and reinforce expectations that the Fed will stay focused on inflation rather than shifting quickly toward rate cuts.

What's next

The report arrives five days after the Federal Reserve held its benchmark rate in a range of 3.75% to 4.00% at its October meeting, a decision made on a 10-2 vote, according to the Fed's own statement, with two policymakers dissenting in favor of a cut. Economists will be watching whether this month's combination of firmer manufacturing output, above-trend GDP growth and still-elevated prices pushes the central bank toward another hold, or even a hike, when it meets again for its two-day policy meeting on December 8-9, a session that will also include the Fed's quarterly Summary of Economic Projections and the closely watched "dot plot" of individual rate forecasts. ISM's own data have shown general sentiment among manufacturers souring for three straight months even as the headline index improves — 34% of comments were categorized as positive in October against 66% negative — underscoring that executives remain wary of tariff policy and geopolitical risk even as order books fill up. ISM is scheduled to publish its November report, covering factory activity data collected this month, on December 1.