Booming U.S. manufacturers can't keep up with demand - and high inflation isn't helping

By Jeffry Bartash

Production jumps to 5-year high amid AI boom, ISM finds, but business leaders are 'very worried'

Cables and servers in the computers room at a data center.

U.S. manufacturers in October pumped out the most goods - plastics, computers, electrical equipment and so forth - in five years as a growing economy and a revolution in artificial intelligence stoked demand.

Stubborn inflation was still a big problem, however, and companies had trouble obtaining supplies and delivering goods to customers in a timely manner.

The Institute for Supply Management said its survey of manufacturers rose slightly to 55.5% in October from 54.5% in the prior month, just a hair below a four-year high. Any number above 50% signals expansion.

The ISM index has been in positive territory for 10 straight months after nearly a year of sub-50% readings.

An AI boom has powered the rebound in manufacturing, but the lingering effects of the Trump tariffs, high oil prices tied to the Iran war and difficulty obtaining supplies have removed some of the shine.

"We are in expansion, you don't dismiss that, but folks are very worried," said Susan Spence, chairman of the ISM survey. "If we had the war over ... then I feel like the floodgates would open."

Key details: A measure of production climbed to 59.0% to hit the highest level in five years, ISM said.

New orders rose slightly (55.5% vs. 55.3%) and were quite strong. Manufacturers also added more workers and hours for the fourth month in a row after three years of contracting employment.

A measure of inflation stayed near a four-year high, reflecting higher costs companies are incurring to obtain energy and other supplies. The AI boom has created shortages and rising prices for several critical products.

"Customers continue to be gobsmacked by the high price of equipment when they ask for quotes," a transportation-equipment executive told ISM.

"Things don't seem to be calming down on pricing," Spence said.

Deliveries of customer orders were also taking longer. Typically that's a sign of economic expansion, but now it stems largely from delays in receiving supplies to finish products on time.

"A $2,000 item six months ago is now $4,000. We are hand-to-mouth," an executive at a machinery maker told ISM. "All the while, our customers are breaking down the doors complaining about our delivery delays."

Big picture: To hear top executives of manufacturers, it's the best and worst of times. As good as business has been lately, they say, it could be so much better. That's also true of the broader U.S. economy.

"Economic policies coming out of Washington continue to weigh on business conditions," an executive at a maker of metal parts told ISM. "Customers are unwilling to make commitments to anything other than the shortest term due to the vast uncertainty."

Looking ahead: "U.S. manufacturing gained momentum in October, led by a sharp acceleration in production and sturdy new orders," senior economist Priscilla Thiagamoorthy of BMO Capital Markets wrote in a note. "But persistent supply constraints and elevated input costs suggest the inflationary blaze remains far from contained.

"The combination of firmer factory activity and still-hot prices is not a good mix for the Fed."

Market reaction: Stocks DJIA SPX rose on Monday, partially recovering from a big decline last week.

-Jeffry Bartash

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11-02-26 1059ET