ISM Data Shows Costs Rising Even as Inventory Growth Slows

Manufacturing supplier deliveries slowed for the ninth consecutive month in August, while services deliveries have now slowed for ten months straight. The Logistics Managers Index shows transportation costs hitting 90.0 in August, the fourth time in five months above that threshold. Costs are rising even as inventory growth slows, which points to supply-driven inflation rather than demand.

The ISM Manufacturing PMI registered 54.6% in August, down from 55.6% in July but still in expansion territory. The Supplier Deliveries Index, which is inverted so readings above 50 indicate slower performance, rose to 59.3% from 58.9%. This is the ninth consecutive month of slowing deliveries. Five of the six big manufacturing industries reported slower deliveries: Computer and Electronic Products, Food, Beverage and Tobacco Products, Machinery, Chemical Products, and Transportation Equipment.

Manufacturing inventories held expansion at 50.6%, down 0.6 points from July. The Customers Inventories Index sat at 42.8%, which ISM classifies as too low. Yet the Prices Index remained elevated at 71.1%, matching July and now at 23 straight months of increases. The survey cited three main drivers: higher steel and aluminum prices across the value chain, tariffs on imported goods, and increased petroleum-based product costs tied to the Middle East conflict. Higher prices were reported by 46.2% of respondents in August, down 4 points from July.

On the services side, the September PMI dropped to 50.0% from 52.0% in August, barely holding above the expansion threshold. Business Activity contracted for the first time since May 2020 at 49.9%. New Orders slowed to 50.4%, growing at a reduced pace for the fourth straight month. Employment remained in contraction at 47.2%. Supplier Deliveries rose to 52.6%, up 2.3%, marking the tenth consecutive month of slower deliveries. Nine sectors reported slower deliveries.

The Services Prices Paid Index increased 0.2% to 69.4% in September. Panelists highlighted tariff impacts on food products from India, China, and Southeast Asia, coffee from South America, and apparel and electronics from Asia. Steve Miller, Chair of the ISM Services Business Survey Committee, noted that year-over-year cost increases are getting progressively greater.

The Logistics Managers Index for August tells a similar story. The headline reading dropped to 66.6 from 68.9 in July and 71.1 in June, a second consecutive slowdown. Inventory Levels slowed to 52.8%, just above breakeven. Yet Inventory Costs accelerated to 78.6%, the second-highest reading in 12 months. The 25.8-point spread between Inventory Costs and Inventory Levels is nearly double the 13.1-point average delta between these two metrics.

Warehousing Capacity moved into expansion at 53.5%, its fastest rate all year. Warehousing Prices remained high at 75.0%. Transportation Capacity continued contracting at 40.0%, but at a slower rate than July. Transportation Prices rose to 90.0%, making it four out of the last five months that this metric has expanded at 90.0% or above. On a scale that tops out at 100.0, readings this high are unusual.

The pattern across all three surveys is clear. Goods are not moving faster, but everything about moving them costs more. Aggregate Logistics Costs, which combines Inventory Costs, Warehousing Prices, and Transportation Costs on a 0-300 scale, averaged 241.9 from March through August 2026. That is a statistically significant step up from the pre-Iran conflict period and from the post-tariff, pre-conflict phase. Historically, aggregate costs above 240.0 have led to increased supply-driven inflation.

This is not a demand story. Manufacturing new orders fell 3 points to 53.7% in August. Services new orders slowed to 50.4% in September. The slowdown is visible in inventory accumulation, which has stalled even as costs climb. When logistics costs expand at near-record rates while inventory growth flatlines, something is clogging the pipes rather than filling the orders.

The next ISM Manufacturing PMI report is set for October 1, 2026, at 10:00 a.m. ET. Watch whether Prices Paid finally breaks below 70% and whether Supplier Deliveries start to reverse. The Logistics Managers Index for September will release October 6. Transportation capacity utilization and diesel prices will be key signals of whether this cost pressure is structural or temporary.

Related reading: Oil Breaks $102 on Saudi Strikes and Hormuz Risk · Gasoline Prices Rise as Brent Holds Near $91 and Geopolitical Premium Hits the Pump · Oil Rally on Supply Concerns: How Far Can It Go?

This content is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Consult a qualified financial advisor before making investment decisions.