U.S. manufacturing expanded for a ninth consecutive month in September with an ISM Manufacturing PMI of 54.5 — just 10 basis points below August and 40 bps shy of consensus expectations — while the prices index surged 6.8 points to 77.9, cementing cost inflation as the sector's dominant concern.

The Thursday report from the Institute for Supply Management showed supply executives continuing to flag "pricing pressures" as a key worry. Rising transportation costs, partly driven by elevated diesel fuel prices, and tariff-driven input cost increases ranked among the top headwinds respondents cited.

The new orders index — a forward-looking activity gauge — rose 1.6 percentage points from August to 55.3, also its ninth straight month of expansion. Five of the six largest manufacturing industries tracked reported order growth: computer and electronics, chemical products, transportation equipment, food and beverage, and machinery.

Demand sentiment softened, however. The ratio of positive-to-negative comments on new orders slid to 1.7-to-1, down sharply from 3.5-to-1 in July. Respondent sentiment overall skewed 40% positive and 60% negative, a slight deterioration from August's 42%-58% split. Pricing volatility, tariffs, the Iran war and increasing lead times drew the most complaints.

Supply chains still tight

ISM's supplier deliveries index, the only inverted subindex in the dataset, has signaled slowing deliveries and supply chain constraints for 10 consecutive months. The September reading of 59 was 30 bps lower sequentially — marginal relief, but still deep in territory indicating elongated lead times.

The backlog of orders index expanded 4.6 points to 56.4, while production (56.7) grew for an 11th straight month, though it eased 1.6 points from August. Manufacturing employment (52.7) grew for a third consecutive month, up 1.5 points.

Customers' inventories fell 1.2 points to 41.6, remaining "too low." The report noted that a "too low" status "is usually considered positive for future production" — depleted downstream stocks typically force restocking demand. But the report cautioned that a rising interest rate environment, alongside existing goods cost inflation, could deter firms from carrying elevated stock levels.

The September PMI reading is consistent with annualized real GDP growth of 2.4%, the report said; a sustained level above 47.5 signals the broader economy is growing.

Capex planning is stretching out. The average commitment lead time for capital expenditures reached 176 days in September, five days longer than in August — a signal that equipment investment decisions are taking longer to lock in.

LTL carriers eye the inflection

The industrial economy typically accounts for roughly two-thirds of LTL revenue, and the ISM dataset leads inflections in LTL volumes by approximately three months. Nine months of sustained manufacturing expansion therefore points to continued freight demand building into year-end.

Third-quarter updates from public carriers showed year-over-year tonnage growth has kept accelerating on a cumulative basis since first turning positive in March. Old Dominion (NASDAQ: ODFL) reported an acceleration in y/y yield growth in August, both with and without fuel surcharges, even as higher shipment weights presented a modest headwind.

Pricing power is following the demand signal. Old Dominion recently pulled forward its annual general rate increase — 4.9% on various tariff codes — as LTL carriers accelerate rate hikes across the board. For shippers, the combination of a 77.9 prices index, rising diesel costs and carrier GRIs landing early means budgeted linehaul and fuel costs are likely to keep climbing into the fourth quarter.

Old Dominion kicks off LTL earnings season on Oct. 28, reporting third-quarter results ahead of the market open. Its tonnage and yield commentary will offer the first hard read on whether the ISM-led recovery is converting into sustained pricing gains for carriers.

With the new orders subindex holding above the 52 threshold consistent with a growing manufacturing order book, and inventories at customer levels still depleted, the leading indicators point to further LTL volume and rate strength — provided tariff and fuel inflation doesn't choke demand first.