A separate report Tuesday from the Commerce Department pointed to continued health in the construction business, where spending rose 0.5 percent to another record high in September. Spending reached a seasonally adjusted annual rate of $1.12 trillion as builders took advantage while they could of still-low interest rates — a situation likely to change as the Fed continues its policy of raising rates.

"Rising prices and energy costs in particular are of major concern as manufacturers are struggling to control costs," said Norbert Ore, chairman of the ISM's business survey committee. The ISM, based in Washington, D.C., compiles its monthly economic reports from surveys of corporate purchasing executives.

Stephen Stanley, chief economist at RBS Greenwich Capital Markets, said higher prices were due to increased production at factories and supply disruptions tied to hurricanes Katrina and Rita. "Certainly a big part of what is going on in the cost side is energy related," he said, adding that the economy in the factory sector "has a lot of momentum."

The ISM said executives reported paying higher prices for some 30 raw materials — and lower prices for only one, nickel.

One executive who took part in the ISM's October survey told of the "most price increase letters I have ever seen," while another respondent expressed concern about "the price of oil and its effect on the future prices of commodities."

David Resler, chief economist at Nomura Securities International Inc., said the higher prices faced by manufacturers could put a strain on some company earnings. "The question is whether or not they have the capacity to pass on the higher costs to consumers," he said.