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U.S. manufacturing activity edged up in September, though new orders and employment were subdued as factories grappled with the fallout from President Donald Trump’s sweeping tariffs.Â
The Institute for Supply Management (ISM) survey and other private-label data will assume greater importance among investors seeking to assess the health of the economy after the U.S. government shut down at midnight on Tuesday, delaying the publication of key economic data, including the closely watched employment report for September that was due on Friday.
Import duties dominated responses in the ISM survey on Wednesday, with some manufacturers of miscellaneous goods complaining “steel tariffs are killing us.” Paperwork related to tariffs was also causing materials to be held up at borders.
Though some of the uncertainty surrounding trade policy had resolved as deals were made and the levies came into effect, Trump is not done with tariffs, unveiling more duties recently. Tariffs have cast a pall over the economy, and have combined with immigration raids to impede job growth.Â
Economists warned the 15th government shutdown since 1981, which will slow air travel, suspend scientific research, withhold pay from U.S. troops and lead to the furlough of 750,000 federal workers at a daily cost of $400 million, would further muddy the economic outlook.Â
“Tariffs are a time bomb for the manufacturing industry which so far has a very long fuse but eventually it will go off and may well bring the entire economy down with it,” said Christopher Rupkey, chief economist at FWDBONDS.
The ISM said its manufacturing PMI increased to 49.1 last month from 48.7 in August. It was the seventh straight month that the PMI remained below a reading of 50, indicating contraction in manufacturing, which accounts for 10.1% of the economy. Economists polled by Reuters had forecast the PMI rising to 49.0.
Only five industries reported growth, including primary metals and textile mills. Among the 11 industries that contracted were wood products, machinery, electrical equipment, appliances and components, transportation equipment as well as computer and electronic products.
Some manufacturers of transportation equipment described business conditions as continuing to be “severely depressed.”Â
They noted “companies are starting to pass on tariffs via surcharges, raising prices up to 20%.Â
Others saw no benefit from interest rate cuts and tax reductions from Trump’s “One Big Beautiful Bill,” which passed in July, because “all capital projects are on hold until there is some level of certainty and customers start to place orders for new equipment again.”
Makers of electrical equipment, appliances and components said “customer orders are depressed for heavy machinery because tariffs are so impactful to high-end capital equipment.”Â
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Similar sentiments were echoed by their counterparts in the computer and electronic products sector who said “our industry is at a low point right now.”
Trump, who recently announced a raft of duties including a 25% levy on heavy-duty trucks, has defended the tariffs as necessary to protect domestic manufacturing.
The ISM survey’s forward-looking new orders sub-index dropped to 48.9 from 51.4 in August. This measure has contracted in seven of the last eight months. Backlog orders remained subdued as did export orders. Delivery times lengthened further last month, keeping prices paid by factories for materials high.Â
The survey’s measure of factory employment rose to a still-depressed 45.3 from 43.8 in August. Some transportation equipment makers said they were “continuing to find ways to reduce overhead, which means letting go of experienced workers.”
Stocks on Wall Street were trading higher. The dollar was little changed against a basket of currencies. U.S. Treasury yields fell.
Uncertainty is Hurting the Labor Market
The impact of uncertainty on the labor market was illustrated by the ADP National Employment Report, which showed private payrolls decreased by 32,000 jobs in September, the biggest drop since March 2023, after declining 3,000 in August. Economists had forecast private employment increasing 50,000.
The loss of jobs was almost across industries, with only education and health services, and information reporting gains.
But the ADP is not a true picture of the labor market’s health. The job market has stagnated, with low demand for labor amid weak hiring and the rise of artificial intelligence and a diminishing supply of workers because of immigration raids, creating what Fed Chair Jerome Powell has described as a “curious balance.”
Government data on Tuesday showed there were 0.98 job openings for every unemployed person in August compared to 1.0 in July. Economists expect the lackluster labor market will spur the Fed to cut interest rates again in October.
The U.S. central bank resumed easing policy last month, cutting its benchmark overnight interest rate by 25 basis points to the 4.00%-4.25% range, to aid the labor market.    Â
The ADP report, jointly developed with the Stanford Digital Economy Lab, has a poor record predicting the private payrolls in the Labor Department’s employment report. It will, however, take the spotlight in the absence of the monthly jobs report.
“Ordinarily, ADP’s estimate of monthly employment is of secondary importance to macroeconomic trainspotters,” said Bill Adams, chief economist at Comerica Bank. “It could have outsize influence on the next Fed decision, too, if the shutdown lasts long enough to keep the Fed from seeing the September (official) jobs report before their next decision on October 29.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
