Manufacturing PMI Holds at 54.5, But Input Costs Jump 6.8 Points

What does the September manufacturing PMI mean for freight rates?

U.S. manufacturing expanded for a ninth consecutive month in September with a 54.5 PMI reading, but the prices index jumped 6.8 points to 77.9. Raw materials costs rose for a 24th straight month. Higher prices were reported by 58.6% of manufacturing supply executives surveyed, 12.4 points more than in August. Rising transportation costs driven partly by elevated diesel fuel prices and tariff-driven input costs are squeezing margins.

The September PMI came in 10 basis points below August and 40 basis points shy of consensus expectations. A reading above 50 signals expansion. The 54.5 level is consistent with annualized real GDP growth of 2.4%, according to the Institute for Supply Management report released Thursday.

New orders expanded for a ninth straight month at 55.3, up 1.6 percentage points from August. Five of the six largest manufacturing industries tracked reported increases: computer and electronics, chemical products, transportation equipment, food and beverage, and machinery. But demand sentiment around new orders slid to a ratio of 1.7-to-1 positive-to-negative comments, down from 3.5-to-1 in July.

Why cost inflation matters for small fleets

The 77.9 prices reading is the number that hits settlement statements. When manufacturing input costs rise, shippers eventually push for lower freight rates or delay shipments to manage cash flow. The 6.8-point jump in one month signals accelerating cost pressure that will show up in contract negotiations and spot-rate volatility through year-end.

Manufacturing supply executives cited pricing volatility, tariffs, the Iran war, and longer lead times as primary concerns. Overall sentiment skewed 40% positive and 60% negative, slightly worse than August's 42%-58% split. The average commitment lead time for capital expenditures stretched to 176 days in September, five days longer than August.

Customers' inventories registered 41.6, down 1.2 points and still in "too low" territory. That status typically signals positive future production demand. But rising interest rates and goods cost inflation may keep firms from rebuilding stock levels aggressively, limiting the freight volume upside.

LTL demand and rate implications

The industrial economy accounts for two-thirds of less-than-truckload revenue. The ISM dataset leads inflections in LTL volumes by approximately three months, meaning September's expansion reading points to continued volume growth into December.

Third-quarter updates from public carriers showed year-over-year tonnage growth has accelerated on a cumulative basis since first turning positive in March. Old Dominion reported an acceleration in year-over-year yield growth in August, both with and without fuel surcharges, even as higher shipment weights presented a modest headwind. Old Dominion and other carriers recently pulled forward annual general rate increases on various tariff codes.

Production expanded for an 11th straight month at 56.7, down 1.6 points from August. The backlog of orders dataset expanded 4.6 points to 56.4. Manufacturing employment grew for a third straight month at 52.7, up 1.5 points sequentially. Those employment gains suggest sustained production activity, which translates to steady freight demand.

Supply chain constraints persist

The supplier deliveries index registered 59, down 30 basis points from August. This subindex is inverted: a reading above 50 signals slowing delivery times and supply chain constraints. September marked the 10th consecutive month of constrained deliveries. Longer lead times and delivery delays mean carriers face tighter scheduling windows and shippers pay premiums for expedited service.

What this means for a 10-truck fleet

Nine months of manufacturing expansion is good news for freight volume. But the 6.8-point jump in the prices index and the 24th straight month of raw-material cost increases mean shippers are under margin pressure. That pressure flows downhill. Expect contract rate negotiations to stay contentious and spot rates to remain volatile as shippers balance volume needs against cost control. The LTL rate increases already announced by major carriers signal that cost inflation is sticking. Small fleets running general freight or manufacturing-heavy lanes should plan for stable volume but continued rate pressure through Q4. Old Dominion reports third-quarter earnings October 28, which will provide the first hard data on whether LTL yield growth held through September.