Costs Up 5%, Sales Up 4.3%: This Month in Manufacturing

Two forecasts landed in the same survey this month. Manufacturers expect raw material and other input costs to climb 5.0 percent over the next twelve months. Over the same twelve months they expect sales to grow 4.3 percent. Read those side by side and the arithmetic of the next year becomes clear. Revenue is going up. Margin is going the other way unless something changes on the floor or in the price list.

Rising raw material costs ranked as the top business challenge in the National Association of Manufacturers Q3 outlook survey for the second consecutive quarter, with health care costs and trade uncertainty behind them. Optimism, oddly, is running hot at the same time. Nearly 79 percent of respondents report a positive outlook for their own company, and projected growth in sales, production, capital investment and exports is the strongest in more than four years. Both readings are honest. Demand is genuinely good. Serving demand is genuinely more expensive.

If you run a manufacturing operation between $10M and $200M in revenue, the month handed you a pricing problem dressed up as a growth story. The plants who come through the next four quarters intact will be the ones who know their real landed cost per part before they quote, not after they ship. Our free ERP assessment exists for exactly this gap.

In this issue

NAM Q3 survey: input costs forecast up 5.0 percent, sales up 4.3 percent
ISM prices index frozen at 71.1, the 23rd straight month of rising material costs
Factory payrolls add 16,000 jobs, led by machinery and fabricated metal
New orders cool to 53.7 as the PMI slips to 54.6
Machine tool orders hit $605.8M in July, 55 percent above last year
Canada counter-tariffs of 15 to 50 percent take effect on $27.6B of US goods
Customs clears up to $128.7B in tariff refunds for importers
Small business optimism dips to 98.7 as owners defer bigger investments

The Cost Line Keeps Winning

The ISM prices index held at 71.1 in August after a small dip in July, marking the 23rd consecutive month of rising raw material costs. Anything above 50 on this index means more firms report paying more than report paying less, so 71.1 describes breadth rather than magnitude. Nearly two years without a break in the breadth is the real story. Five of the six largest manufacturing sectors reported higher prices, with steel and aluminum feeding through the whole supply chain and petroleum-based inputs adding pressure from the Middle East conflict. One small mercy: the share of companies paying higher prices fell to 46.2 percent from 50.2 percent in July, so the pressure is at least narrowing.

Freight is the quieter half of the squeeze. In the NAM survey, 77.3 percent of manufacturers named freight rates a challenge and 74.1 percent named fuel costs, and 98.6 percent move goods by truck. Plenty of mid-market shops still treat inbound freight as an overhead line rather than a cost attached to a part number. When material inflation runs for two straight years and diesel moves with a geopolitical headline, unallocated freight quietly eats the margin on your highest-volume SKUs and nobody sees where.

Demand Softened, and Capital Spending Did Not

The ISM Manufacturing PMI eased to 54.6 percent in August, one point below July and an eighth straight month of expansion. New orders slipped 3.0 points to 53.7 and backlogs to 51.8. Growth continues, at a slower clip. Machinery, transportation equipment and computer and electronic products all posted order increases, which is the useful detail for anybody supplying those three.

Payrolls agree. Factories added 16,000 jobs in August, with gains concentrated in machinery and fabricated metal products, and the average manufacturing workweek edged up to 40.5 hours. Modest hiring plus a longer week points to plants running closer to their ceiling before they commit to headcount.

The capital numbers tell the sharper story. New orders for metalworking machinery reached $605.8 million in July, down 8.0 percent from June but 55.2 percent above July 2025, and the first half of the year set a record $3.44 billion, up 36 percent. Shops are buying capacity through a slowdown in orders, not after one. Sixty-three percent of NAM respondents plan to import industrial machinery in the next year, with most of them replacing or upgrading existing equipment. New machines land on an old process. The shops who get payback are the ones who fix scheduling and costing before the crate arrives, a pattern worth reading about in our ERP implementation guidance.

The Trade File Moved Twice

Canada imposed counter-tariffs of 15 to 50 percent on $27.6 billion of US goods effective September 8, targeting steel and aluminum, appliances, agricultural equipment, pulp and paper, plastics and electronics. Some steel and aluminum lines move from a 25 percent Canadian rate to 50 percent. If any share of your revenue crosses the northern border, your landed price to a Canadian customer changed overnight, and your Canadian-sourced components are moving in the other direction. Integration between the two manufacturing bases means second-order exposure for firms who neither import nor export directly.

Meanwhile Customs has cleared up to $128.68 billion in tariff refunds following the February Supreme Court ruling against open-ended tariffs under emergency powers. The money goes to importers of record, not to their customers and not to households. For a mid-market importer, a refund claim is worth real cash, and claiming one requires entry-level records tying duty paid to specific shipments and HTS codes. Firms who kept customs data in a broker's inbox rather than in their own system are discovering the cost of the filing decision now.

The Bottom Line

Small business optimism slipped to 98.7 in August from 99.8, with the net share expecting a better economy down five points and capital spending plans easing. Owners feel decent about today and cautious about the next two quarters, which is a reasonable read of a month where orders cooled and costs did not.

Waiting is the expensive option here. Input costs are forecast to outpace sales growth, material prices have risen for 23 months without a pause, and trade rules changed twice in four weeks. None of those are problems a leaner team solves by watching. They are solved by knowing, per job and per part, what a job costs to make today rather than what the standard cost said last January. The plants who repriced in August did so because their numbers were current. The rest will find out at year end.

Where to start

You want to grow into the demand without giving the gain back to material inflation. The blocker is visibility: costs, freight, duty and labor sitting in four places, none of them current. Third Wave helps mid-market manufacturers close that gap. Take the free ERP assessment and find out how much of your margin is guesswork before the next price letter arrives.