WASHINGTON, Oct 1 (Reuters) - US manufacturing activity was little changed in September, with prices for inputs surging amid strong demand, pointing to sustained inflation pressures.
The Institute for Supply Management said on Thursday its manufacturing PMI dipped to 54.5 last month from 54.6 in August. Economists polled by Reuters had forecast the PMI climbing to 55.0. The PMI has held above the 50 threshold this year, indicating growth in manufacturing, which accounts for about 9.4% of the economy.
An AI infrastructure buildout is supporting manufacturing as well as businesses rebuilding inventories to meet robust domestic demand. There are, however, concerns that segments not related to the AI spending boom could struggle in the months ahead amid headwinds from the US-Israeli war with Iran, which has snarled supply chains and raised energy prices.
Diesel prices are at record highs, and economists say the economy could soon feel the effects.
The ISM survey's new orders measure increased to 55.3 last month from 53.7 in August. Order backlogs also rose. Strong demand continued to strain supply chains. The survey's supplier deliveries index eased to 59.0 from 59.3 in August. A reading above 50 indicates slower deliveries.
As a result, inflation at the factory gate increased last month. The survey's gauge of prices paid for inputs jumped to 77.9 from 71.1 in August, consistent with economists' expectations that inflation could remain above the Federal Reserve's 2% target for some time.
Revisions and changes in methodology showed inflation was less threatening in July and August, prompting financial markets to scale back expectations for another interest rate increase this month. The US central bank in September raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs in the months ahead.
With orders rising and unfilled work piling up, manufacturers hired more workers in September. A measure of factory employment rose to 52.7 from 51.2 in August, suggesting a further increase in manufacturing payrolls in September.
A Reuters survey of economists expects factory employment rose by 10,000 last month after advancing 16,000 in August. Overall nonfarm payrolls are forecast to have increased by 90,000 after surging 162,000 in August. The unemployment rate is forecast to have held steady at 4.1% for a third straight month, though risks are tilted to the upside. The government will publish September's employment report on Friday.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )
