U.S. ISM Manufacturing Index (October 2025)

ISM Manufacturing Index Shows Eighth Consecutive Month of Contraction

• The ISM Manufacturing Index fell to 48.7 in October, reversing September's increase and returning to the level we saw in August.
• Six of 18 industries reported growth last month, up from five in September. But it was smaller industries that reported growth this month, accounting for only 58% of manufacturing GDP compared to 70% last month.
• Demand conditions improved in October. New orders, new export orders, backlog of orders, and customers inventories all improved, but remain in contractionary territory. 
• The production index declined to 48.2 in October after spiking up to 51.0 in September, close to the 47.8 it had registered in August, making its time in expansionary territory short-lived. 
• Price gains decelerated again in October, coming in at 58.0 vs. 61.9 in August. Prices are still increasing, but at a slower rate.

Key Implications

• Although manufacturing activity contracted at a faster pace in October, there are some welcome signs in this report. All the demand indicators improved, albeit remaining very weak, and the price index remains elevated, but eased. On the supply side, while production and employment indexes both declined, the low reading on customers' inventories is usually a sign of future production increases, which could be positive for manufacturing output in future months if demand indicators continue to improve. The moderation in the price index adds to the case for the Federal Reserve to reduce interest rates again, and carries added importance given that it seems October CPI is unlikely to be released anytime soon due to the government shutdown. 
• Survey respondents continue to report substantial struggles with adjusting to tariffs, in addition to weak demand conditions. Some respondents identify added costs from tariffs, volatility in prices of their imports, and a lack of success in attempts to reshore production. Some respondents also noted that tariffs are driving up their prices, but it is either not possible to source their imported inputs domestically or it is still cost effective to import, leading to cost and price increases. These are all factors that make it difficult to increase capacity or expand.

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