US Manufacturing Continues to Expand as Business Confidence Rises, Price Pressures Ease

Factory growth has cooled somewhat from summer highs but remains solid as inflation eases and inventories rise.

Caterpillar equipment sits parked in a lot at Peterson Cat in San Leandro, Calif., on Aug. 5, 2025. Justin Sullivan/Getty Images

U.S. manufacturing activity expanded in September for a fourth straight month, even as growth slowed from recent highs, with business confidence improving and price pressures cooling, according to an S&P Global report.

S&P Global’s flash Purchasing Managers’ Index (PMI), released on Sept. 23, showed that the manufacturing activity index came in at 52.0 in September, down slightly from 53.0 in August, signaling continued growth in factory conditions. Readings above 50 indicate expansion.

The broader U.S. composite output index, which includes services activity, eased to 53.6 from 54.6, marking a three-month low but still pointing to expansion.

The report described business activity growth as “robust,” though it also showed that firms faced somewhat softer demand and limited ability to raise prices despite elevated tariff-driven input costs.

“Further robust growth of output in September rounds off the best quarter so far this year for U.S. businesses. PMI survey data are consistent with the economy expanding at a 2.2 percent annualized rate in the third quarter,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

“However, the monthly profile is one of growth having slowed from its recent peak back in July, and September saw companies also pull back on their hiring. Softening demand conditions are also becoming more widely reported, curbing pricing power.”

Although tariffs continued to drive input costs higher, firms reported the slowest pace of selling price increases since April. “The number of companies able to hike selling prices to pass these costs on to customers has fallen, hinting at squeezed margins but boding well for inflation to moderate,” Williamson said.

Manufacturing inventories grew at a record pace amid weaker sales. “In manufacturing, there are also signs that disappointing sales growth has caused inventories to accumulate at an unprecedented rate, which could also further help soften inflation in the coming months,” Williamson said.

The report said business sentiment improved on expectations that lower interest rates will offset some anticipated impacts from tariffs and broader policy uncertainty.

“September encouragingly saw business sentiment improve in part due to the anticipated beneficial impact of lower interest rates,” Williamson said.

While inflationary pressures fell, the survey data suggest that consumer price inflation is still running higher than the Federal Reserve target of 2 percent.

The Fed resumed lowering interest rates last week, cutting the benchmark overnight interest rate by 25 basis points to the 4.00-4.25 percent range. The central bank also projected a steady pace of interest rate reductions for the remainder of 2025.

Stephen Miran, a new member of the Federal Reserve Board of Governors, cast the lone dissent, favoring a deeper half-point cut.

Fed officials said that uncertainty around the economic outlook remains elevated, and that indicators suggest that growth moderated in the first six months of the year.

“Job gains have slowed, and the unemployment rate has edged up, but remains low,” members of the Federal Open Market Committee (FOMC), the central bank’s rate-setting body, said in a Sept. 17 statement, noting that inflation remains “somewhat elevated.”

The FOMC’s remarks about cooling in the labor market dovetail with the S&P Global report, which noted that hiring slowed in September in both manufacturing and services.

The S&P Global report follows recent data from the Federal Reserve Bank of Philadelphia, which showed that manufacturing activity in the U.S. Mid-Atlantic region jumped sharply in September, beating expectations and reaching its strongest level this year. Even though indicators for new orders soared and inflation eased in the Fed report, employment remained flat.