Tariffs and Weak Demand Stall Manufacturing Recovery Despite Small PMI Uptick

You know that feeling when you’re trying to read the tea leaves in a murky cup? That’s kind of what September’s manufacturing data feels like. On one hand, there are small signs of life; on the other, the headwinds are still loud and clear. The ISM PMI for manufacturing in September came in at 49.1%, up 0.4 points from August but still under the 50 threshold that divides expansion from contraction.

So yes, technically things improved just a little, but we’re still in contraction territory. Let’s walk through what’s really going on behind that headline number.

One of the recurring themes from the ISM commentary is that demand remains soft. New orders fell further the index dropped 2.5 points to 48.9%. Backlog orders ticked up a bit (to 46.2%), but that may be a delayed effect of orders earlier in the cycle, not new demand strength.

Exports were especially hit: the new export orders index slumped, declining 4.6 points to 43.0%. That’s a big red flag, especially in a time when trade tensions and tariffs are front of mind for many manufacturers.

In fact, tariff uncertainty kept getting named‑dropped by respondents. Some voiced that import restrictions, unpredictable duties, and supply chain chokepoints are making them hesitate to commit to new capital plans.

So, the “not a good sign” headline from Manufacturing Dive hits the mark; weak demand across internal and external markets is dragging the sector.

Here’s where it gets interesting: the production index rose 3.2 points to 51.0, crossing back into slight expansion. That shows that factories are still running, likely relying in part on earlier order fill-ins or inventory draws.

But that production uptick must be put in context. With orders weak, one risk is overproduction relative to demand, which leads to inventory buildups. In fact, in S&P’s commentary on the PMI, analysts noted that firms have been stockpiling goods ahead of tariff changes, which could create pressure to scale back output later.

Also, supply chain and delivery disruptions are creeping back in. Tariff-related vendor delays are becoming a bigger issue again, threatening both output and input cost stability.

On jobs, the news is mixed, still weak overall, but slightly better than in prior months. The employment index moved up to 45.3% (versus 43.8% in August), still in contraction, but less severe. That said, ISM noted more comments about layoffs or not filling positions than about hiring.

On the cost side, the story is nuanced. Input costs (raw materials, parts) are still elevated, with many respondents pointing to tariff-driven cost pressure. But there’s a small silver lining: selling price inflation cooled in September firms may be discounting more just to move inventory.

These dynamic costs are still rising, but weak demand is making it harder to pass on those costs, placing companies in a squeeze. Margins get compressed, especially when the global competitive landscape is tight.

What does all this mean beyond the numbers? A few takeaways:

• We’re not out of contraction yet. That inch up to 49.1 is welcome, but it doesn’t signal a full recovery; it shows a sector still under pressure.
• Tariffs are more than a back‑drop. They’re shaping behavior. Whether it’s stockpiling, delaying investment, or rerouting supply chains, the shadow of trade policy is influencing decisions.
• Inventories matter. If demand doesn’t catch up, companies will be forced to cut back production, worsen job losses, or deepen discounting to liquidate stock.
• Supply chain delays have reappeared. That can ripple through the production schedule and input costs, and late or uncertain deliveries erode planning confidence.
• External demand is fragile. With export orders weakening, U.S. manufacturers are feeling the global pullback, especially from countries sensitive to U.S. tariffs.

Finally, keep an eye on the upcoming ISM services PMI, broader macro data, and signals from central banks; they’ll help clarify whether this is a gentle stumble or the early stages of something steeper.