US manufacturing benefiting from a strong economy, tech investment, tariffs and energy security

US manufacturing should remain strong, but growth is increasingly concentrated in technology-intensive and other high-value-added segments rather than traditional labour-intensive industries.

• The October ISM manufacturing index rose to 55.5 from 54.5, while production increased to 59.0 from 56.7; new orders reached 55.5 and backlogs 54.6, all above the 50 expansion threshold.
• Employment edged down to 52.4 from 52.7, while prices paid remained elevated at 75.2, matching the six-month average.
• Technology, electronics, transportation and power-related manufacturing have significantly outperformed other segments, supported by US economic growth, tariffs, energy security and rising military spending.
• Traditional labour-intensive and commoditised producers remain exposed to foreign competition, high US production costs and retaliatory tariffs that limit the protective effect of tariffs.
• Construction spending fell 1.9% month-on-month in September after a revised 2% increase in August; residential spending dropped 5.5% in September after rising 3.6% in August.
• Non-residential construction growth is concentrated in data centres, where spending rose 8.6% month-on-month and 90.3% year-on-year, while other segments excluding data centres and electric power were broadly flat.

Takeaway: Investors should favour US advanced manufacturing, technology, data centres and potentially defence exposure, while treating weakness in residential construction and traditional manufacturing as evidence that higher rates and cost disadvantages are weighing on less specialised sectors.