NewsSeptember 2, 2026

Factory Orders Slowed in August. Input Prices Didn’t Move at All.

ISM's August 2026 PMI fell to 54.6% as new orders dropped 3 points — but the Prices Index held at 71.1%. What that squeeze means for small business.

Last updated: September 2, 2026

U.S. manufacturing expanded for an eighth straight month in August, but the growth is thinning out at the top of the funnel — and the cost side hasn’t budged. The Institute for Supply Management’s Manufacturing PMI came in at 54.6% on September 1, down a full point from July. New orders fell 3 points. Backlogs fell 3.2 points. The Prices Index sat at 71.1% — the exact same reading as July.

The short answer

ISM’s August 2026 Manufacturing PMI was 54.6%, down 1 point from July’s 55.6%. New orders dropped to 53.7% and backlog of orders to 51.8%, while the Prices Index held flat at 71.1%. Demand is decelerating while input costs stay elevated — a margin squeeze, not a downturn.

What happened

ISM released the August report on September 1, 2026. The headline index marked the eighth consecutive month of manufacturing expansion and the 22nd consecutive month of overall economic expansion. Fifteen industries reported growth; only Wood Products and Chemical Products contracted.

The composition is where the story is:

Index	August 2026	July 2026	Change
Manufacturing PMI	54.6%	55.6%	-1.0
New Orders	53.7%	56.7%	-3.0
Production	58.3%	58.5%	-0.2
Employment	51.2%	52.8%	-1.6
Backlog of Orders	51.8%	55.0%	-3.2
Prices	71.1%	71.1%	0.0
Supplier Deliveries	59.3%	58.9%	+0.4
Imports	52.5%	55.7%	-3.2
New Export Orders	53.2%	53.0%	+0.2

Production held up at 58.3% — factories are still working through what they already sold. But new orders, backlog and imports all fell about 3 points in a single month, which is the shape of a pipeline emptying faster than it refills. Employment growth cooled to 51.2%, barely above the 50 line that separates hiring from shedding.

Meanwhile the Prices Index didn’t move. Steel has now risen in price for ten consecutive months. Semiconductors, aluminum, copper, resins and memory components were all reported up. Electronic components have been in short supply for 18 straight months; electrical components for 14.

Respondents named pricing volatility in 57% of negative comments, lengthening lead times in 46%, the Iran conflict in 30% and tariffs in 29%.

“The economy is annoying; it is getting in the way of otherwise good business” — an ISM survey respondent, citing tariffs and the conflict in the Strait of Hormuz.

Why it matters

A PMI above 50 means expansion, and 54.6% is a healthy number in isolation. That is exactly why the headline is the least useful part of this report.

When the Prices Index sits at 71.1% while New Orders falls to 53.7%, suppliers are still raising prices into softening demand. That combination compresses margin from both ends at once: your cost of goods keeps climbing on schedule, and your ability to pass it through weakens because your customers’ order books are thinning too. Supplier deliveries at 59.3% — slower, not faster — confirms it isn’t a demand collapse. It’s a cost problem riding on top of decelerating volume.

Note also that the survey period covers August, before Canada’s counter-tariffs take effect on September 8. Whatever tariff cost is embedded in the 71.1% reading, it does not yet include that round.

What this means for your business

You don’t need to be a manufacturer for this to land on your P&L. If you buy anything physical — inventory, equipment, packaging, parts, construction materials — 71.1% is the number that shows up in your next quote.

Reprice before your suppliers do, not after. Ten months of steel increases and a flat 71.1% Prices Index mean your Q4 quotes will be higher than your Q3 quotes. If your price list was set against spring costs, your gross margin is already eroding quietly. Pull your last three months of purchase invoices for your top five inputs and compute the actual percentage change — don’t rely on a general sense that “things cost more.”
Watch your own backlog, not the national one. The backlog index dropped 3.2 points. Do the same read on your business: how many weeks of committed work do you have booked today versus 60 days ago? A falling backlog with rising costs is the specific combination that turns a profitable quarter into a cash crunch, because you keep paying today’s input prices to fulfill work you priced months ago.
Order long-lead items now. Capital expenditure lead times still run 171 days and production materials 84 days. Anything you plan to have in hand for Q1 2027 needs a purchase order in the next few weeks, and electronic and electrical components have been scarce for over a year.
Separate volume variance from price variance in your books. If revenue is flat and costs are up, your bookkeeping should tell you which is which. Track material cost per unit, not just total COGS, so a 6% cost increase doesn’t get mistaken for a volume swing.
Don’t hire on the headline. Employment at 51.2% is close to flat. If you’re weighing a hire against contractor hours this fall, the data supports keeping the commitment variable a while longer.

Frequently asked questions

What is the ISM Manufacturing PMI?

It’s a monthly survey of purchasing managers at U.S. manufacturers, published by the Institute for Supply Management. Readings above 50% indicate expansion; below 50% indicate contraction. It’s released on the first business day of each month, ahead of most government data.

Does the ISM PMI matter if I’m not a manufacturer?

Yes — as a leading indicator of your input costs. The Prices Index tracks what purchasing managers are paying for materials, which flows into what you pay for goods, equipment and construction one to two quarters later.

What does a Prices Index of 71.1% actually mean?

It means far more survey respondents reported paying higher prices than lower ones. It is a diffusion index measuring breadth, not the size of the increase — so 71.1% says price increases were widespread across materials, not that costs rose 71%.

Is a PMI of 54.6% a bad number?

No. It signals solid expansion. The concern is the direction and the mix: new orders and backlog falling roughly 3 points each while prices stay pinned at an elevated level.

The bottom line

August’s report is not a recession signal. It’s a margin signal. Growth is real but decelerating at the order stage, and the cost side is showing no sign of relief eleven months into a steel price run. The businesses that come out of Q4 intact will be the ones that repriced on September data instead of waiting for the December income statement to tell them.