MONDAY ECONOMIC REPORT - October 8, 2026

Manufacturing Expansion Drives Payroll Growth

• Manufacturing employment rises again in September: Manufacturing employment advanced by 9,000 in September after increasing by 15,000 in August. Meanwhile, nonfarm payroll employment increased by just 29,000 in September, coming in below expectations. At the same time, the unemployment rate ticked up 0.1 percentage point from August to 4.2%, while the labor force participation rate rose 0.2 percentage points to 61.8% but is down from 62.5% in September 2025.

• What it means: Although nonfarm job gains remain weak over the year, averaging just 41,000 job gains per month over the past 12 months, the “breakeven” level of job gains necessary to keep the unemployment rate steady has fallen dramatically in the past two years due to the steep drop in immigration. The “breakeven” level of job gains is now estimated to be less than 85,000 job gains per month compared to the more than 150,000 job gains needed per month prior to the immigration crackdown. Therefore, the labor market can remain healthy despite relatively weak jobs reports.

• Manufacturing activity continued to expand in September: The ISM Manufacturing® PMI expanded for the ninth consecutive month and at roughly the same pace as the prior month, edging down to 54.5% from 54.6% in August. Demand indicators, such as the New Orders, Backlog of Orders and New Export Orders indices, stayed in expansion territory. The Prices Index jumped 6.8 percentage points in September to 77.9%, indicating raw materials prices grew for the 24th straight month and at a much faster pace than the prior month.

• Why it matters: Despite price pressures stemming from tariffs and the conflict in the Middle East, demand indicators remained broadly positive in September. That said, respondents noted that new tariffs against Canada were increasing costs further, while higher interest rates were slowing growth of new construction projects. As the pricing and supply pressures flow through, it could dampen growth in activity in the future.

• Strong demand sustains growth in factory orders: New orders for manufactured goods increased 0.1% in August and 6.8% over the year. Excluding transportation, new orders climbed 0.3% over the month and 7.3% year-over-year in August. Meanwhile, machinery orders are up 13.0% over the year, led by a 39.3% surge in industrial machinery.

• What it shows: Durable goods orders climbed 7.7% over the year, while nondurable goods orders grew 5.8%, with strength in demand being broad-based across the industry. Amid the surge in new demand, keeping up with the influx of orders remains a problem for manufacturers, with unfilled orders jumping 8.8% year-over-year.

• Global manufacturing expansion accelerated despite price pressures: In September, growth in global manufacturing activity strengthened from August, rising from 52.3 to 53.0, a 55-month high. Output and new orders both improved at a faster pace than the prior month, with growth reaching 62-month and 55-month highs, respectively. Meanwhile, lead times lengthened as new export orders increased at the quickest rate in over five years. Input and output price growth accelerated in September amid supply disruptions and higher transport and energy costs.

• Why it matters: Global manufacturing activity expanded at the fastest pace since the mid-2021 goods sector boom. Amid faster growth, businesses remained optimistic about their outlook, anticipating output to expand further over the next year. If geopolitical tensions and trade challenges were to abate, the U.S. could better capitalize on the growing demand for goods worldwide.

• Other PMI measures also display expanding manufacturing activity: The S&P Global Manufacturing PMI was 55.9 in September, up from 53.9 in August and the highest reading since May 2022. Amid increased domestic demand, production rose at a faster rate, while new orders grew at the quickest pace since April. At the same time, export orders declined, while input prices increased at a steeper rate due to tariffs, higher energy prices and supply shortages.

• What it means: Robust domestic demand kept the manufacturing expansion alive, but tariffs negatively hit foreign demand. Further, tariffs and the conflict in the Middle East continued to put pressure on input prices. This trend of growth paired with inflationary pressures is likely to persist as long as demand exceeds supply.

• Manufacturing job openings fell in August but remain elevated: Job openings for manufacturing fell by 54,000 to 522,000 in August. The manufacturing job openings rate edged down to 4.0% from 4.4% in July but rose from 3.2% the previous year. Meanwhile, the hires rate for manufacturing climbed to 2.6% from 2.3% in July, while the separations rate, which includes quits, layoffs, discharges and other separations, rose 0.2 percentage points for manufacturing to 2.5%, up slightly from 2.4% the year prior.

• What it shows: The pickup in job openings for manufacturing this year has been more pronounced in durable goods sectors, which has also seen a notable increase in their order books and production levels in 2026 compared to nondurable goods sectors. On the other hand, hiring rates have been slightly stronger in nondurable goods sectors, while durable goods sectors appear to be having more trouble filling open positions amid the increased demand for labor.

Written by:  Victoria Bloom and Michael Green, for the National Association of Manufacturers.