American factories expanded for a tenth consecutive month in October, and for the first time in the current cycle every component of the headline index was above the break-even line. The Manufacturing PMI compiled by the Institute for Supply Management rose one point to 55.5 from 54.5 in September, comfortably ahead of the 54.7 analysts had expected. ISM said the reading corresponds to roughly 2.7 percent annualized growth in real gross domestic product, and that the broader economy has now expanded for 24 consecutive months.
The internals
The composite improved for reasons that argue it has staying power. Production jumped 2.3 points to 59.0, the strongest print since November 2021 and a twelfth straight month of growth. New orders edged up to 55.5, the tenth month in expansion. Inventories swung back above the threshold at 51.4 after a single month of contraction, and supplier deliveries slowed for an eleventh month at 59.1. Only employment softened, slipping 0.3 point to 52.4 while remaining in expansion for a fourth month.
The demand side carries the most signal. The backlog of orders index registered 54.6, down from 56.4 but still growing for a tenth month, and the customers inventories index held at 41.6, judged too low for 25 consecutive months. A sustained reading that low has historically pointed to production increases ahead, because downstream buyers are running lean and will eventually have to restock. New export orders rose to 51.2, and imports climbed 1.9 points to 52.9, their strongest in three months, which suggests domestic demand is pulling in foreign goods rather than substituting for them.
Prices and the war premium
The darker half of the report is the price line. The Prices Index eased 2.7 points to 75.2, but that is still the 25th consecutive month of rising raw material costs and the fourth straight month above 70. ISM attributed the pressure to three sources: steel and aluminum increases that propagate through the whole value chain, tariffs applied to imported goods, and petroleum-based products pushed up by the conflict in the Middle East. Sixteen of 18 industries reported paying more in October, and none reported paying less. Commodity detail published by trade press showed methanol and resins higher, with polypropylene and aluminum among the rare decliners.
Lead times tell a parallel story. Electronic components have been in short supply for 20 consecutive months, electrical components for 16 and memory for 10. Aluminum has been reported up for 35 consecutive months, copper for 16 and steel for 12. Those durations matter more than the index levels, because a component that has been scarce for 20 months is no longer a disruption; it is the planning baseline, and every contract signed this quarter has already priced it in.
The sentiment split
What makes this expansion unusual is how unhappy the buyers are inside it. General sentiment worsened for a third consecutive month, with 34 percent of respondents comments positive against 66 percent negative. Among the negative comments, pricing volatility appeared in 62 percent, longer lead times in 41 percent, tariffs in 25 percent and the Iran war in 21 percent, with most respondents citing several factors at once. That is a portrait of firms expanding volume while losing margin predictability, which is a different animal from a healthy upcycle.
Individual comments make the arithmetic vivid. A chemical products buyer described the year in three words, negative, inflation and in the red, and said tracked costs were up more than 6 percent against a normal 2 to 3 percent budget, with 24 items higher, nine lower and six neutral. A machinery respondent described lead times stretching from four weeks to fifty and prices moving from $2,000 to $4,000. A computer and electronics respondent pointed to soft demand for scientific instruments and uncertainty around research funding.
Two speeds, one index
The breadth data explains the contradiction. Twelve of 18 industries grew in October and three contracted: printing and related support, paper products and nonmetallic mineral products. Five of the six largest industries expanded, with only petroleum and coal products outside. Yet 6 percent of manufacturing gross domestic product was in contraction, up from 2 percent in September, and 6 percent was in strong contraction, defined as a composite reading of 45 or lower. A single large industry flipping can move that share, which is why the aggregate looks strong while a meaningful minority of the sector is deteriorating.
ING chief international economist for the United States James Knightley framed the split sharply: high value-added and advanced manufacturing, spanning technology, electronics, transport and power-related sectors, has significantly outperformed, and that story is expected to continue, while traditional labor-intensive commoditized manufacturing will keep shrinking under pressure from foreign competitors. Tariffs, in his assessment, are not enough to offset the high cost of producing in the United States. Rate-sensitive construction is also weak, with construction spending down 1.9 percent month over month in September.
What it means for B2B buyers
For procurement and operations teams, the report argues for three adjustments. Lock in component supply earlier than the sales forecast implies, because supplier deliveries have been slowing for nearly a year and the customers inventory reading says the restocking wave has not started. Treat price escalation clauses as a permanent feature of 2027 contracts rather than a temporary concession, since the price index has not printed below 70 since mid-year. And build scenarios around a volume recovery that is real but narrow, concentrated in machinery, electronics, transportation equipment, chemicals and food, rather than a broad industrial rebound that lifts every category.
The one variable that could change the trajectory quickly is the conflict driving energy costs, a point ISM survey chair Susan Spence has made repeatedly. Remove that pressure and the underlying order book looks strong enough to support faster growth. Leave it in place and manufacturers will keep expanding output while telling their suppliers that 2026 was a lost year.
