Source: Institute for Supply Management via PR Newswire. Summary and analysis by S2V Advisory.
What happened
The Institute for Supply Management released its September Manufacturing PMI report on October 1. The headline index came in at 54.5%, a ninth straight month of expansion. The Prices Index rose 6.8 points to 77.9%, its 24th consecutive month of increase. Supplier deliveries slowed for a tenth month, backlogs grew, and inventories contracted. ISM lists aluminum, copper, steel in several forms, resins, freight, fuel, memory components, semiconductors and printed circuit boards among commodities up in price. Electronic components have been in short supply for 19 months, electrical components for 15, and memory for nine.
The Services PMI report, released October 5, showed the same direction. The services Prices Index rose to 74%, which ISM says is the highest reading since July 2022. Fuel, diesel, gasoline, copper, steel, labor, memory products and software licensing were reported up in price, and software licensing has now been on that list for eight months. Memory components, solid state drives, switchgear and wire and cable were reported in short supply. ISM’s services chair said tariffs and fuel costs were the issues respondents cited most.
What it means for buyers
Two reports, two sectors, one message: suppliers are paying more for inputs and passing it on. The question for a buyer is which increases are real and which are riding the wave.
- Separate the input from the markup. A supplier whose costs are 20% copper does not need a 15% price increase when copper moves. Ask for the cost breakdown and apply the index movement to the share it affects.
- Watch the shortage list, not only the price list. Electrical components, memory and switchgear have been scarce for months. For anything with a lead time, the risk is an unavailable part, which costs more than an expensive one.
- Check your own exposure in services. Software licensing has been rising for eight months. Those increases arrive at renewal, where they are easiest to negotiate and most often waved through.
- Hold increases to a mechanism. Where an increase is justified, agree how it reverses when the index falls. Prices that rose with an index and stayed when it dropped are the most common form of value leakage we find.
Should-cost modeling turns an ISM headline into a negotiating position for the categories that matter to you. See our guide to should-cost modeling.