The U.S. manufacturing sector is entering the fourth quarter with its expansion streak intact, employment growing for a third consecutive month, and industrial output rebounding in September. But October’s data arrives with a renewed warning on costs. Producer prices posted their largest monthly increase since early 2022, the ISM Prices Index surged back toward its Iran-war highs, and the trade deficit crossed $100 billion for the first time since early 2025.
The cost story also has a new protagonist. Tariffs, particularly new friction with Canada, displaced the Iran conflict as the dominant concern in manufacturer commentary, with executives describing disrupted supply chains, rising input costs, and customers pulling back on capital expenditures until trade policy becomes more predictable. The broader expansion is holding, but the pressures that challenged the sector earlier in the year have not gone away.
In this month’s roundup, we’re exploring the latest data on manufacturing output, ISM activity, trade flows, new orders, employment, producer prices, and regional Federal Reserve surveys to assess how the industrial economy is positioned heading into the final months of 2026.
Economic Indicators for U.S. Manufacturers in October: Executive Summary
Manufacturing sustains its ninth consecutive month of expansion, with hiring continuing and industrial output rebounding, though producer prices surged to their highest single-month gain since early 2022 and the trade deficit broke above $100 billion. Here’s the scoop:
- Manufacturing output rose in September, with gains in printing and support, primary metals, machinery, and electrical equipment, while motor vehicles and parts led declines (Federal Reserve)
- U.S. manufacturing activity expanded for a ninth consecutive month in September, with new orders and backlogs strengthening even as price pressures surged back toward their earlier highs (Institute for Supply Management)
- The U.S. trade deficit climbed above $100 billion in August for the first time since early 2025, as imports surged while export growth remained modest (U.S. Census Bureau; U.S. Bureau of Economic Analysis)
- New orders for manufactured goods held nearly flat in August, while shipments were virtually unchanged and unfilled orders extended their long run of growth (U.S. Census Bureau)
- Manufacturing added 9,000 jobs in September for a third consecutive monthly gain, even as the broader economy added just 29,000 jobs overall (U.S. Department of Labor)
- Producer prices surged 1.3 percent in September, the largest monthly increase since March 2022, pushing the 12-month gain to its highest level since December 2022 (U.S. Bureau of Labor Statistics)
- Regional manufacturing activity remained broadly positive, with New York surging to a near five-year high and Kansas City accelerating for a third straight month, while Richmond slipped back into contraction (Federal Reserve regional surveys)
Let’s explore the latest details from the most critical economic reports released in the month of October:
Manufacturing Output Rebounds in September
Manufacturing output rose 0.3 percent in September, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released October 16th. Total industrial production increased 0.7 percent for the month, exceeding expectations, as strong gains in utilities and mining supported the headline figure. Manufacturing capacity utilization inched up to 75.9 percent in September, a modest improvement from August but still below its long-run average.
Output gains in September were led by printing and support activities, which advanced 1.9 percent, followed by primary metals, up 1.6 percent; machinery, up 1.4 percent; and electrical equipment, appliances, and components, up 1.3 percent. Marginal increases were also posted in several other durable and nondurable industries.
These were offset by a decline in motor vehicles and parts, which fell 3.0 percent to lead all sectors to the downside. Furniture and related products dropped 1.2 percent, paper fell 1.1 percent, and plastics and rubber products declined 0.9 percent.
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U.S. Manufacturing Expansion Continues for Ninth Straight Month
U.S. manufacturing activity expanded for a ninth consecutive month in September, according to the Institute for Supply Management’s Manufacturing PMI report released October 1st. The PMI registered 54.5 percent, essentially unchanged from August’s 54.6 percent and holding solidly in expansion territory. New orders accelerated to 55.3 percent, backlogs jumped to 56.4 percent for one of their strongest readings in months, and employment rose to 52.7 percent, marking a third consecutive month of growth in the sector’s workforce.
The defining story of the September report was the return of acute cost pressure. The Prices Index surged 6.8 percentage points to 77.9 percent, back near the elevated levels seen at the start of the Iran conflict earlier in the year. Steel, aluminum, and petroleum-based products all posted sharp increases, and tariff-related concerns surged to 34 percent of respondent comments, up significantly from prior months. New trade friction with Canada drew particular attention, with executives describing disrupted cross-border supply chains, rising costs for capital equipment, and customers reluctant to commit until trade policy stabilizes. Supplier deliveries slowed for a tenth consecutive month, and inventories slipped back into contraction after just one month of expansion, pointing to sustained and deepening demand across the sector.
U.S. Trade Deficit Tops $100 Billion for First Time Since Early 2025
The U.S. trade deficit surged above $100 billion in August, crossing a threshold not seen since early 2025, according to the U.S. International Trade in Goods and Services report released October 6th by the U.S. Census Bureau and the U.S. Bureau of Economic Analysis. The goods and services deficit rose to $105.6 billion, up $12.7 billion from a revised $92.8 billion in July, as imports climbed sharply while export growth remained modest.
Exports rose 1.4 percent to $315.2 billion, while imports surged 4.3 percent to $420.8 billion. The goods deficit widened $12.8 billion to $136.6 billion, its widest level of the year, while the services surplus held near flat at $31.0 billion. Year-to-date, the deficit remains 19.9 percent below the same period in 2025, with exports up 11.8 percent, but the three-month average deficit has climbed to $89.9 billion and the earlier dramatic improvement has narrowed considerably as import levels have accelerated through the second half of the year.
New Orders Hold Steady in August
New orders for manufactured goods were essentially flat in August, according to the Monthly Full Report on Manufacturers’ Shipments, Inventories, and Orders released October 5th by the U.S. Census Bureau. Orders edged up 0.1 percent to $663.5 billion, a minimal gain following July’s stronger 0.9 percent rebound.
Shipments were virtually unchanged at $658.6 billion, while unfilled orders continued their long run of growth, rising 0.6 percent to $1.6 trillion. Inventories increased 0.5 percent, an eleventh consecutive monthly gain. The flat new orders reading reflects a period of consolidation rather than deterioration, with backlogs remaining deep and inventory accumulation continuing to support near-term production activity.
Manufacturing Hiring Continues in September
U.S. manufacturing added 9,000 jobs in September, according to data released October 2nd by the U.S. Department of Labor, extending a three-month streak of consecutive gains and representing nearly a third of all jobs added to the broader economy during the month. Durable goods accounted for 8,000 of the new positions while nondurable goods contributed 1,000. The broader economy added just 29,000 jobs in September, a sharp slowdown, while the unemployment rate held at 4.2 percent.
Plastics and rubber products led all subsectors with 4,600 new jobs, followed by machinery at 4,500 and transportation equipment at 3,400. Wood products added 2,100 positions, with smaller gains in electrical equipment and chemicals. On the loss side, paper manufacturing shed 2,600 jobs, furniture declined by 2,000, and printing fell by 1,800. Manufacturing job openings eased to 530,000 in August, down from 606,000 in July, suggesting some cooling in unfilled demand even as the sector’s hiring momentum continues.
Producer Price Inflation Surges in September
Producer prices surged in September, according to the Producer Price Index report released October 15th by the U.S. Bureau of Labor Statistics. The index for final demand rose 1.3 percent, the largest single-month advance since March 2022, and pushed the 12-month gain to 6.3 percent, the highest level since December 2022. The September increase follows gains of 0.5 percent in August and 0.2 percent in July, marking a sharp reacceleration after months of gradual cooling.
Goods prices rose 2.6 percent, their steepest monthly gain in years, with energy surging 10.8 percent and accounting for roughly half of the goods advance. Services also contributed, rising 0.8 percent for their largest monthly increase since early 2022. Core producer prices, excluding food, energy, and trade services, advanced 0.5 percent, pushing the 12-month core reading to 5.0 percent. September’s data marks a clear setback for manufacturers hoping the summer’s cost moderation signaled a durable turning point.
Related: Selling in a Downturn: Opportunities & Best Practices
Regional Surveys Show Diverging Trends as Costs Resurge
Regional Federal Reserve surveys heading into October present a sharply diverging picture across districts. New York surged to a near five-year high and Kansas City accelerated for a third straight month, while Texas posted its strongest production reading of the year. Philadelphia continued easing from its summer peaks, and Richmond slipped back into contraction. Cost pressures were elevated or intensifying in every district surveyed, consistent with the sharp national move in producer prices and the ISM Prices Index.
New York (Empire State)
Manufacturing activity in New York State rose sharply in October, according to the Empire State Manufacturing Survey from the Federal Reserve Bank of New York. The general business conditions index jumped 18 points to 25.5 from 7.6 in September, one of the stronger single-month gains of the year and one of the highest readings since early 2022. New orders and shipments both posted gains, and the October reading suggests New York manufacturers entered the fourth quarter with considerable momentum after a brief September moderation.
Kansas City Fed (CO, KS, NE, OK, WY, Northern NM, Western MO)
Manufacturing activity in the Tenth District strengthened further in September, according to the survey from the Federal Reserve Bank of Kansas City released September 24th. The composite index rose to 14 from 10 in August and 9 in July, a third consecutive monthly improvement pointing to building regional momentum. Nondurable manufacturing drove much of the gain, led by plastics and rubber products. Price indexes continued to rise alongside activity, reflecting the same cost dynamic that characterized the national ISM report for the month.
Richmond Fed (VA, MD, NC, SC, DC, WV)
Manufacturing activity in the Fifth District slipped back into contraction in September, according to the survey from the Federal Reserve Bank of Richmond released September 22nd. The composite manufacturing index fell to -2 from 4 in August, as shipments dropped sharply to -5 and new orders declined to -6, each reversing the modest gains seen in prior months. Employment was the notable bright spot, improving to 7 from -2, pointing to continued hiring even as broader activity weakened. Forward-looking indicators for shipments and new orders remained in positive territory, suggesting firms expect the September pullback to be temporary.
Philadelphia Fed (PA, NJ, DE)
Manufacturing activity in the Philadelphia region continued to expand in October but slowed for a second consecutive month, according to the Federal Reserve Bank of Philadelphia’s Manufacturing Business Outlook Survey released October 15th. The general activity index fell to 20.9 from 37.8 in September, its second straight monthly decline and well below August’s peak of 47.4. New orders dropped sharply to 4.3 and shipments eased to 15.3, while employment remained positive at 9.1. Prices received climbed to their highest level since May 2025, even as prices paid eased modestly to 43.2. Firms remained broadly optimistic, with more than 52 percent expecting to increase capital spending in 2027, though the future activity index fell 20 points to 33.0.
Texas (Dallas Fed)
Texas manufacturing output accelerated sharply in September, according to the Texas Manufacturing Outlook Survey from the Federal Reserve Bank of Dallas released September 28th. The production index jumped 13 points to 29.5, its highest reading of the year and well above the series average, pointing to robust output growth across the state. Broader business conditions were more mixed, with the general business activity index easing to 9.8 from 11.6 and the company outlook index declining to 8.7 from 19.2. The future general business activity index fell sharply to 20.8 from 37.2, though the future production index held steady near 40.0, suggesting manufacturers remain broadly confident in output conditions even as their overall outlook cooled.
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Sources
https://www.federalreserve.gov/releases/g17/20261016/g17.pdf
https://www.industrynet.com/blog/us-manufacturing-activity-trends-from-the-ism
https://bea.gov/news/2026/us-international-trade-goods-and-services-august-2026
https://www.census.gov/manufacturing/m3/current/
https://www.industryselect.com/blog/hiring-trends-in-the-us-manufacturing-sector
https://www.bls.gov/news.release/archives/ppi_10152026.htm
https://www.newyorkfed.org/surveys/empire/empiresurvey_overview
https://www.kansascityfed.org/surveys/manufacturing-survey/
https://www.richmondfed.org/research/regional_economy/surveys_of_business_conditions/manufacturing
https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2026-10
https://www.dallasfed.org/research/surveys/tmos/2026/2609
Editor’s Note: This article is updated monthly to reflect the latest economic data released by government sources and regional Federal Reserve banks.
