U.S. manufacturing activity strengthened in October, but the improvement came with a softer hiring reading and continuing increases in factory costs. The Institute for Supply Management's purchasing managers index rose to 55.5 from 54.5 in September in its report released Monday, November 2.
That was stronger than the unchanged reading economists polled by Reuters had expected. The separate readings for production, employment and prices moved in different directions.
What the factory reading measures
The PMI summarizes purchasing and supply executives' reports of monthly changes in their U.S. operations. It combines five equally weighted measures: new orders, production, employment, supplier deliveries and inventories. A reading above 50 generally signals manufacturing expansion; below 50 signals contraction.
As ISM explains in its methodology, these are diffusion indexes. They describe the direction and spread of changes across respondents. A PMI of 55.5 does not mean factories produced 55.5% more goods, and a one-point increase is not a one-percent increase in manufacturing output.
The October report shows how the components differed:
| Measure | September | October |
|---|---|---|
| Manufacturing PMI | 54.5 | 55.5 |
| New orders | 55.3 | 55.5 |
| Production | 56.7 | 59.0 |
| Employment | 52.7 | 52.4 |
| Prices | 77.9 | 75.2 |
Production strengthened more than new orders, while employment remained in expansion territory but edged lower. Those movements do not provide a count of jobs added or a percentage change in the number of goods made.
Compare the survey with actual output
The Federal Reserve's latest industrial production report, released October 16, covers September. Manufacturing output rose 0.3% that month after falling 0.2% in August, and was 1.1% above its September 2025 level.
The broader industrial production measure rose 0.7% in September. That includes mining and utilities as well as manufacturing. Utilities output jumped 3.5%, which helps explain why the overall industrial number was stronger than the factory figure.
These are different measurements for different months. The Fed estimates changes in the volume produced; October's PMI reports the balance of manufacturers describing improving or worsening conditions. September's measured increase supplies recent context, but it cannot confirm the size of an October production gain.
Manufacturing capacity utilization was 75.9% in September, below its 78.2% long-run average. That measure describes how much available production capacity was in use.
The broader economy also grew in the third quarter. BEA's advance GDP estimate put growth at a 3.4% annualized rate, compared with 2.2% in the second quarter. That is an inflation-adjusted measure covering the whole economy. Its annualized rate expresses the quarter's pace over a year; the actual increase from the second to third quarter was 0.8%.
Lower cost pressure still means rising costs
October's prices index fell 2.7 points to 75.2. It remained well above 50, indicating continued increases in manufacturers' input prices. Supplier deliveries also remained slow: that index increased to 59.1 from 59.0, with readings above 50 indicating slower delivery.
Household inflation is measured separately. The Bureau of Economic Analysis reported that the personal consumption expenditures price index rose 0.5% in September and 3.6% over the preceding year. Excluding food and energy, prices rose 0.3% for the month and 3.1% for the year.
The same release shows the pressure on purchasing power: disposable personal income rose 0.2% before inflation but fell 0.3% after adjusting for prices. Spending in dollars increased 0.5%, while inflation-adjusted spending was essentially unchanged. Higher spending in dollars therefore did not represent an equivalent increase in the goods and services households bought.
The October payroll and unemployment figures are scheduled for Friday, November 6. The Bureau of Labor Statistics calendar lists October's Employment Situation report at 8:30 a.m. Eastern, or 5:30 a.m. Pacific. BEA's October income and spending figures are due November 25 at the same time.
