U.S. manufacturing continued to expand in October, but optimism among factory executives fell sharply as tariff uncertainty, rising costs, and weakening export demand clouded the outlook, according to the latest S&P Global U.S. Manufacturing PMI survey.
The PMI edged up to 52.2, up slightly from 52.0 in September, marking the fifth consecutive month of expansion and signaling ongoing—but tentative—growth in the industrial economy. The October reading reflects modest gains in output and the fastest increase in new orders in two years. But employment growth slowed to a three-month low, suggesting manufacturers are tapping the brakes on hiring as they brace for slower conditions ahead.
“Manufacturing output continues to grow, but the mood in the sector is turning more cautious,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Confidence in the outlook for the coming year has deteriorated to one of the lowest levels seen over the past three years, as companies worry about the impact of policies—most notably tariffs—on costs and demand.”
Williamson added that while production pipelines remain active, “many firms are now reporting hesitancy from customers and greater scrutiny on new orders,” underscoring the fragile balance between steady demand and rising economic anxiety.
The details behind the headline number reveal a mixed picture:
- Output expanded modestly, supported by domestic demand and restocking activity.
- New orders rose at the quickest pace since early 2024, suggesting some stabilization after a volatile summer.
- Export orders, however, fell again, weighed down by tariffs, a strong dollar, and soft global demand.
- Employment grew at the slowest rate since July as firms delayed hiring and focused on automation and cost controls.
- Input costs continued to climb, reflecting higher prices for energy, materials, and imported goods, while output prices rose only marginally, indicating profit margins are being squeezed.
“Manufacturers are caught in a pincer movement of elevated costs and cooling demand,” Williamson noted. “While some relief has come from shorter supplier lead times and improved logistics, the broader picture still points to a sector growing under strain.”
The report suggests that manufacturing remains a relative bright spot in the U.S. economy but one increasingly at risk from softening confidence and policy volatility. The S&P Global Composite PMI, which includes both manufacturing and services, rose to 54.8 in October from 53.9 a month earlier, the strongest reading since July. But the survey’s future output index, a gauge of business sentiment, dropped to a three-year low.
S&P Global said many manufacturers cited tariff exposure, fluctuating input costs, and election-year uncertainty as key factors weighing on their outlook. Producers in industrial equipment, building materials, and fabricated metals reported rising hesitancy among customers placing large capital orders.
“What we’re seeing is growth without conviction,” said Williamson. “Manufacturers are still producing, but they’re increasingly questioning how sustainable current demand will be if policy and cost pressures persist.”
For the B2B manufacturing and distribution sectors, the October data highlight a familiar tension: resilient near-term activity paired with long-term caution. Steady domestic demand and improved logistics continue to support output, but weak exports and higher costs are forcing firms to tighten margins and rethink inventory management.
Distributors are likely to face uneven order patterns heading into early 2026 as customers balance leaner inventories with unpredictable pricing environments. Many are also accelerating investment in digital tools and automation to offset labor and cost pressures—a trend that aligns with broader AI-driven productivity initiatives sweeping through industrial supply chains.
U.S. factories are still growing—but not confidently. The modest rise in PMI shows the sector’s resilience, yet fading optimism, weaker exports, and ongoing tariff friction suggest turbulence ahead. The next phase of manufacturing growth will depend less on pent-up demand and more on how effectively companies adapt—through cost discipline, automation, and smarter supply-chain execution—to a global economy that’s running hot on uncertainty.
