American factories are still producing, hiring and taking new orders, but the cost of keeping assembly lines moving has suddenly become much harder to ignore. The Institute for Supply Management’s September manufacturing report showed its Prices Index surging to 77.9, up 6.8 points from August, signalling an unusually broad increase in what manufacturers are paying for materials.
The pressure is coming from several directions at once. ISM singled out steel and aluminum prices, tariffs on imported goods and higher petroleum-related costs as major contributors. At the same time, manufacturers are dealing with slower supplier deliveries, tight metal availability and uncertainty over cross-border sourcing. The result is an uncomfortable combination: factories remain busy, but the cost of filling those orders is climbing quickly.
What the 77.9 Reading Actually Means
A reading of 77.9 sounds dramatic, but it does not mean factory input prices rose 77.9% in September. ISM’s Prices Index is a diffusion index designed to measure how widespread price increases are across manufacturers. It combines the share of purchasing managers reporting higher prices with half of those reporting no change. A reading above 50 therefore signals that price increases are more prevalent than decreases, while increasingly high readings indicate that upward pressure has become more widespread.
September’s underlying responses show why the headline number attracted attention. About 58.6% of respondents said they were paying higher prices, compared with 46.2% in August. Only 2.8% reported lower prices, while 38.6% said their costs were unchanged. That produced the 77.9 reading, up from 71.1 a month earlier. ISM also reported that raw-material prices have now been increasing for 24 consecutive months. The September figure was close to the 78.3 recorded in March, underscoring how quickly the cost environment has intensified again.
Steel and Aluminum Are at the Centre of the Cost Pressure
ISM specifically identified rising steel and aluminum prices as one of the forces pushing its Prices Index higher. That matters because metal costs rarely remain confined to steel mills or aluminum producers. Machinery, transportation equipment, appliances, electrical components, fabricated metal products and construction-related equipment all depend on metals somewhere in their production chains. A higher price for sheet steel, structural products or aluminum components can therefore show up several steps downstream.
Manufacturers are describing that pressure in practical terms. One machinery-sector respondent told ISM that strong demand from artificial-intelligence infrastructure and data-centre projects had stretched domestic steel capacity, while increasing steel prices were raising both raw-material and finished-product costs. Another fabricated-metals respondent reported worsening steel availability and warned that shortages could create additional production delays. Federal Reserve contacts have also reported elevated steel, copper and aluminum expenses in multiple regions. For a factory purchasing thousands of tonnes of material rather than a few individual components, relatively small changes in per-unit costs can quickly become significant operating expenses.
Tariffs Are Becoming Part of the Factory Purchasing Equation
Trade policy is adding another layer to those metal costs. The Trump administration expanded Section 232 tariffs on a range of steel, aluminum, copper and derivative products in 2026, arguing that stronger import restrictions would support domestic production capacity and reduce reliance on foreign metal supplies. The tariff structure has subsequently been modified for certain products and trading partners, meaning the actual duty faced by an importer depends on the product, origin and applicable exemptions or special treatment.
For manufacturers buying imported inputs, however, the immediate concern is often the landed cost rather than the policy architecture behind it. ISM said tariffs applied to imported goods were among the principal forces behind September’s elevated Prices Index. One machinery manufacturer reported that Canada-related tariffs had raised cross-border costs and disrupted supply relationships that took years to establish. An electrical-equipment respondent similarly reported higher costs for assemblies and capital purchases. Federal Reserve research has found that recent tariffs can significantly raise production costs when manufacturers depend on imported intermediate goods, even when tariffs are intended to provide greater protection for domestic producers of competing products.
The Cost Increase Has Spread Across Most Manufacturing Industries
September’s price pressure was striking for its breadth. Sixteen manufacturing industries reported paying higher raw-material prices, according to ISM. They included primary metals, fabricated metal products, electrical equipment, machinery, transportation equipment, chemicals, plastics and rubber products, paper, furniture, food and computer and electronic products. No industry reported an overall decrease in raw-material prices during the month.
All six of the largest manufacturing industries tracked by ISM also reported higher prices. That makes the 77.9 reading more difficult to dismiss as the result of an isolated commodity spike affecting only a narrow group of factories. Federal Reserve researchers have separately found that input-price diffusion rose sharply across several manufacturing subsectors after the tariff increases that began in 2025. Primary and fabricated metals have been especially exposed to input-cost pressure, while electrical and computer-equipment manufacturers have also experienced substantial increases. The pattern matters because cost increases that spread across many unrelated industries have more opportunities to work their way into supply contracts, capital-equipment prices and eventually finished goods.
Factories Are Still Busy Despite the Cost Squeeze
What makes the September numbers particularly important is that rising costs are arriving while manufacturing activity is still expanding. ISM’s headline Manufacturing PMI came in at 54.5, only slightly below August’s 54.6. Any reading above 50 signals expansion in the manufacturing sector. September marked the ninth consecutive month of growth, while Reuters noted that manufacturing accounts for roughly 9.4% of the U.S. economy.
Demand indicators remained relatively strong as well. New orders rose to 55.3 from 53.7, while the backlog-of-orders index climbed sharply to 56.4 from 51.8. Production remained in expansion territory at 56.7. Customer inventories, meanwhile, registered 41.6, which ISM classified as “too low.” Those figures describe factories that are not simply raising prices because output has collapsed. Many are trying to fill growing order books while simultaneously paying more for inputs. That combination can intensify pressure on purchasing departments because companies have less room to delay buying essential materials when customers are already waiting for finished products.
Supply Chains Are Again Becoming Part of the Problem
Manufacturers are also waiting longer for some of those inputs. ISM’s Supplier Deliveries Index registered 59.0 in September, marking a tenth consecutive month of slower deliveries. Unlike most ISM indexes, a supplier-deliveries reading above 50 indicates longer delivery times. Twelve manufacturing industries reported slower supplier performance, including primary metals, fabricated metals, machinery, electrical equipment, transportation equipment and computer products.
Companies can respond by looking for alternative suppliers, but changing industrial supply chains is rarely as simple as switching stores. Parts may require certification, testing, engineering changes or customer approval before a new supplier can be used. An ISM computer-and-electronics respondent said manufacturers were actively evaluating alternative sources but continued to encounter qualification requirements and capacity constraints. Another machinery respondent described tariff-related disruption to established Canadian supply networks. When businesses have spent years developing suppliers capable of meeting specific tolerances, volumes and quality standards, abruptly changing where components come from can bring its own costs. Tariffs may alter sourcing incentives quickly, while physical supply chains usually take much longer to adjust.
Manufacturers Face a Choice Between Margins and Higher Selling Prices
Rising material costs do not automatically translate into equally large increases for customers. Manufacturers must decide how much they can pass through without losing orders. Federal Reserve business contacts have repeatedly described that tension. Some manufacturers have raised selling prices to compensate for energy, tariff and raw-material expenses, while others have absorbed part of the increase because customers are resisting additional price hikes.
New Federal Reserve research offers another way of viewing that problem. Researchers examining manufacturing subsectors found that input-price measures rose much more sharply than output-price measures after the first wave of recent tariffs. That gap is consistent with margin pressure: factories are paying substantially more for what goes into production but are not always able to increase the price of what comes out by the same amount. San Francisco Fed research has also found that tariffs can have a particularly large direct effect on investment goods because imported components and equipment are embedded throughout production. For manufacturers deciding whether to expand a plant or buy new machinery, input inflation can therefore affect both today’s margins and tomorrow’s investment plans.
Official Inflation Data Will Provide the Next Test
The ISM report is an early indicator rather than an official measure of producer inflation, making upcoming government data especially important. ISM notes that, historically, a Prices Index above 52.8 has generally been consistent with an increase in the Bureau of Labor Statistics’ Producer Price Index for intermediate materials. September’s reading of 77.9 sits far above that historical dividing line, although it cannot by itself determine how large any increase in the government data will be.
The most recent PPI available when the ISM report was released covered August. BLS reported that final-demand producer prices increased 0.4% during the month and were 5.4% higher than a year earlier. Final-demand goods rose 1.1%, with energy contributing heavily to the increase; diesel fuel prices alone jumped 24.1% in August. The official September PPI is scheduled for release on October 15, 2026. Until then, the ISM survey offers one of the earliest indications that American factories entered the fall facing another powerful wave of input-cost pressure—one being driven by metals, tariffs, energy and busy supply chains at the same time.
