Industrial production outperformed in September

October 16, 2026

September industrial production rose 0.7%, beating expectations for a 0.4% increase. Utility output soared 3.5%, the largest gain in nine months, after rising 1.5% in August. Utilities output effectively punched above their weight due to record high temperatures. September was the warmest on record (1895 to present), which followed a record August. Mining output edged up 0.2%.

Manufacturing output rose 0.3%, in line with expectations. The output of motor vehicles and parts declined 3%, the steepest drop in nearly a year. The decline in vehicle output was anticipated based on lower assembly rates.

Interest rates for new auto loans rose to 7.5% in August from 7.1% in July for a 60-month period. Higher financing rates will push some buyers out of the market while upper income households make cash purchases.

Industries associated with the data center buildouts gained ground in September. Primary metals output rose 1.6%, electrical equipment increased 1.3%, while fabricated metal products edged up 0.6%. In the third quarter, output of durable goods rose at an annual rate of 3.8% while nondurable output declined 1.6%. The rise in durables was led by a 28.4% rise in semiconductors and related electronic components. Defense and space equipment output jumped 6.2% in the third quarter after soaring 14% at an annual rate in the previous quarter as stockpiles were replenished.

Shortfalls in output occurred in furniture production, down 1.2%, and wood products, down 0.1%. The residential housing market continues to be buffeted by significant headwinds, especially with mortgage rates climbing to 7.5%, pushing home ownership farther out of reach for many.

The ISM manufacturing Purchasing Managers' Index (PMI) held steady at 54.5 in September, slipping from 54.6 in August. Measures over 50 signal growth. The prices paid index climbed higher to 77.9 from 71.1, the highest reading in four months, pressuring margins as costs rise; that could eventually lead to changes in production mixes.

We look for the Federal Reserve to skip raising rates at the October meeting but resume its upward climb in December.

Ken Kim

KPMG Senior Economist

AI-associated output is providing momentum to the industrial sector, helping to counter rising input costs and rising interest rates. Vehicle output bears close watching in the months ahead to see if the consumer buckles from rising inflation and higher financing costs. We look for the Federal Reserve to skip raising rates at the October meeting but resume its upward climb in December, then follow up with an additional rate hike in the first part of 2027.