Analysis: The One Number in the ISM Report That Didn't Move — Prices at 71.1% for a 23rd Month of Increases

by Nora Halloran · September 1, 2026

Senior Analyst, US Market Current

Read the August ISM Manufacturing Report on Business quickly and it looks like a straightforward deceleration story. The headline PMI fell to 54.6% from 55.6%. New orders dropped three points to 53.7%. Backlogs fell 3.2 points to 51.8%. Employment gave back 1.6 points to 51.2%. Imports fell 3.2 points to 52.5%. Every line pointed the same way.

Almost. The Prices Index printed 71.1% in August — precisely where it printed in July. ISM said raw materials prices increased for a 23rd consecutive month, and the drivers named again and again in the survey's own panelist commentary are steel, aluminum and energy. In a diffusion index, 71.1% means the share of purchasing managers reporting higher prices vastly exceeds the share reporting lower ones. It measures breadth, not magnitude — and that breadth has not broken in nearly two years.

That divergence — demand cooling, costs not — is the version of inflation monetary policy handles least gracefully. A central bank can lean on demand. It has no instrument that lowers the tariff schedule on imported aluminum or reopens a shipping lane.

Consider the tariff channel first. Under the Section 232 proclamation that took effect on April 6, 2026, the United States applies a 50% tariff on steel, aluminum and copper articles made entirely or almost entirely of those metals, a 25% rate on derivative articles that are not almost entirely made of them, and a 10% rate on products made with US steel, aluminum or copper, according to a client alert from the law firm White & Case. The April action also shifted the tariff base to the full customs value of the imported product, including derivative products, rather than splitting value between metal and non-metal content, while carving out an exception for derivative products where the applicable metal inputs are under 15% of the imported product's total weight.

Manufacturers are describing the result in the survey's own comment section. A transportation equipment respondent said "High steel and aluminum prices (due to Section 232 tariffs) continue to make profitability a challenge." A primary metals respondent reported that "Steel prices continue to climb as supply diminishes, aluminum is rising after dropping." A machinery respondent put it flatly: "Prices continue to rise on all goods," with suppliers pointing at energy, steel and labor. A chemical products respondent described struggling to compete as prices escalate on account of tariffs and the Strait of Hormuz conflict.

That last comment names the second channel. ICE Brent briefly traded above $90 a barrel in early Asian hours Monday, ING's commodities team wrote, and the pressure has not let up. ING strategists Warren Patterson and Ewa Manthey put Hormuz transit volumes at 6 million to 8 million barrels a day — they work from a 5 million barrel average — and cautioned that "Further escalation could put these flows under renewed pressure." They also flagged Russia's weekend decision to extend its diesel export ban through the end of September 2026, which bears directly on the freight and industrial energy costs that show up in a manufacturer's cost base.

The third channel is a supply-availability problem that is not about price at all. Supplier Deliveries registered 59.3% in August, up four-tenths from July; in ISM's convention, a reading above 50% means deliveries are getting slower. A computer and electronic products respondent described a supply chain crisis in the electronics market that they characterized as bigger and more complicated than the one during and after COVID-19, tying it to AI infrastructure demand. Scarce components with long lead times are inflationary in a way that a rate increase does not obviously address.

What is conspicuously absent from the ISM cost story is wages. The July employment report showed average hourly earnings up 0.1% month over month and 3.2% year over year, per First Trust Advisors' analysis. Tuesday's Job Openings and Labor Turnover Survey showed the quits rate holding at 1.9% and layoffs and discharges steady at a 1.0% rate on a seasonally adjusted basis — the profile of a labor market with very little wage-bargaining pressure in it. Whatever is pushing input costs, it is not a wage-price spiral.

That distinction matters for how one reads the Federal Reserve's position. The federal funds target range tops out at 3.75%, and the Federal Open Market Committee meets September 15-16. Reuters reported Tuesday that markets were pricing a roughly 70% chance of a 25 basis point increase, crediting CME Group's FedWatch tool; Tech Times, writing Tuesday morning, cited the same CME FedWatch tool in a 65% to 68% range as of the market open. That is one gauge sampled at two moments rather than two gauges in conflict, but on either reading a hike is the market's base case rather than a tail risk.

Chair Kevin Warsh has framed the burden of proof plainly. "While this summer's PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved," he said. Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, read his Jackson Hole remarks as hawkish and quoted him saying prices were "not meaningfully slowing." Tech Times noted that Warsh has replaced the Fed's traditional reaction function with a set of governing principles and has declined to publish data thresholds that would mechanically trigger a move — which is to say markets cannot simply run today's ISM print through a formula and get September's answer.

There is a real argument on the other side, and it rests on the labor data. Nonfarm payrolls declined by 23,000 in July against a consensus of roughly +80,000, with May and June revised down by a combined 103,000, according to First Trust. Economists Robert Stein and Brian S. Wesbury wrote at the time that this "should make it even tougher for the Federal Reserve to raise rates at the next meeting in September." August's ISM employment index falling to 51.2% does not help that case, though Reuters cautioned Tuesday that the ISM employment measure has been "a poor predictor of manufacturing employment in the government's monthly employment report."

Three readings between now and the meeting will bear on the question. The Federal Reserve's Beige Book is scheduled for Wednesday at 2 p.m. ET, and its anecdotal pass-through commentary is the closest thing to a qualitative match for ISM's panelist comments. The ISM Services PMI for August, due Thursday, carries its own prices index covering a far larger share of the economy. And the August employment situation report is scheduled for Friday at 8:30 a.m. ET, with Barclays Economics looking for 25,000 jobs added and unemployment unchanged at 4.1%.

None of these has happened yet, and they could point either way. What Tuesday established is narrower but firm: twenty-three consecutive months have now passed without a break in rising raw materials prices, and August's slowdown in orders did nothing to interrupt it.