U.S. Manufacturing Sector Faces Growing Challenges as PMI Slides to 49.1% in September 2025

The latest report from the Institute for Supply Management (ISM) indicates that economic activity in the manufacturing sector has contracted for the seventh month in a row as of September 2025. The Manufacturing Purchasing Managers' Index (PMI) stands at 49.1%, a slight increase from the 48.7% recorded in August but still below the critical threshold of 50%, which signals contraction.

Susan Spence, chair of the ISM Manufacturing Business Survey Committee, reported the findings, outlining that the overall economy has still seen 65 months of expansion since the contraction in April 2020, despite the current struggles in manufacturing. The September PMI showcases that while some sectors see improvements, the overarching trend is one of decline. Recent patterns include contractions in new orders and raw materials inventories, as well as the employment index, which reflects a hiring freeze across many firms.

Key Findings from the September 2025 ISM Manufacturing PMI Report

1. Manufacturing PMI

The Manufacturing PMI for September is recorded at 49.1%, indicating contraction in the manufacturing sector, albeit at a slower pace compared to earlier months. This represents a 0.4% improvement over August, but it highlights a continued struggle within the sector.

2. New Orders and Production

New orders dropped to 48.9%, down 2.5 percentage points from August, showing a clear decline after a brief growth phase. In contrast, the production index increased to 51.0%, meaning production is expanding, which contradicts the new orders trend. According to Spence, while production growth is encouraging, the decrease in new orders raises concerns about future manufacturing sustainability.

3. Employment Trends

The employment index rose slightly to 45.3%, signaling a reduction in layoffs compared to the previous month. However, the reality remains that many firms continue to manage headcounts conservatively in light of uncertainties surrounding demand. Despite some positive comments regarding employment conditions, the overarching commentary reflects ongoing caution, with a significant number of executives noting measures to reduce workforce levels.

4. Supplier and Inventory Dynamics

The Supplier Deliveries Index moved toward slower performance with a reading of 52.6%, suggesting that delivery times have lengthened as demand outpaces supply capacity in specific areas. The Inventories Index registered at 47.7%, indicating that companies are experiencing accelerated contractions in their raw materials stock, a potentially troublesome sign for manufacturing output in the upcoming months.

5. Prices and Customer Inventories

Price pressures persist with the Prices Index at 61.9%, marking an increase despite a slight decrease from August’s higher level. In terms of customer inventories, the index fell to 43.7%, remaining in 'too low' territory, which typically suggests an uptick in future production activity as companies look to replenish stocks.

The Impact of Tariffs and Economic Uncertainty

Manufacturers are facing multiple headwinds, including growing costs driven by tariffs, leading to suppressed consumer demand. Many industry leaders cited difficulties linked to tariffs on steel and aluminum, which are squeezing margins and hampering profitability. Anecdotal evidence from various respondents highlights a volatile environment where geopolitical tensions and inconsistent economic policies further complicate business operations.

For instance, a representative from the transportation equipment sector voiced concerns about continued price pressures and customer pushback against rising costs, stating, "Our profits are down, and extreme taxes (tariffs) are being shouldered by all companies in our space." Such commentary signals a widespread feeling of uncertainty that hampers planning and increases the likelihood of more drastic measures, including job cuts across sectors as firms navigate this challenging landscape.

Conclusion

As we move deeper into the final quarter of 2025, the signals from the October report will be critical to assess whether the manufacturing sector can sustain any recovery or if contraction will become the new norm amid rising costs and changing consumer behaviors. The importance of recognizing these trends will be crucial not only for supply chain management but also for policymakers aiming to stabilize the economy during these turbulent times.

The next ISM Manufacturing PMI Report, featuring data for October 2025, is scheduled for release on November 3, 2025, which may unveil additional trends and insights vital for industry stakeholders looking to navigate the shifting economic landscape ahead.