U.S. manufacturing tops economists’ expectations for July

Tempe, AZ – U.S. manufacturing activity expanded at its strongest pace in more than four years in July, according to a closely watched survey released Monday, with production accelerating sharply and employment returning to growth for the first time in nearly three years.

The Institute for Supply Management’s manufacturing purchasing managers index rose to 55.6 in July from 53.3 in June, topping economists’ expectations of about 54.0. A reading above 50 signals expansion in the factory sector. The July figure was the highest since May 2022 and marked the seventh straight month of growth after a prolonged contraction earlier in the recovery.

“The Manufacturing PMI registered 55.6 percent in July, 2.3 percentage points above the June figure and the highest reading since May 2022,” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee. She noted the overall economy has now expanded for 21 consecutive months. A manufacturing PMI above 47.5 over time generally points to broader economic growth.

Key details from the report:
New orders increased to 56.7 from 56.0, extending a streak of expansion to seven months.
Production jumped to 58.5 from 52.2, the strongest reading since November 2021 and the ninth consecutive month of growth.
Employment rose to 52.8 from 49.7, entering expansion territory for the first time in 33 months. About 60% of survey respondents said their companies are hiring.
Supplier deliveries slowed further, with the index at 58.9, indicating longer lead times for the eighth straight month.
Prices paid for raw materials remained elevated at 71.1 but eased from 73.0, the third consecutive monthly decline.
Order backlogs climbed to 55.0 from 50.5.
New export orders returned to growth at 53.0 after contracting in June.
Imports rose to 55.7.
Customer inventories stayed “too low” at 40.7, a level typically viewed as supportive of future production.

Fifteen of 18 manufacturing industries reported growth in July. The strongest performers included printing and related support activities; apparel, leather and allied products; electrical equipment, appliances and components; primary metals; and nonmetallic mineral products. Only the chemical products sector contracted. Among the six largest manufacturing industries, four expanded: transportation equipment, machinery, computer and electronic products, and food, beverage and tobacco products.

Respondents cited ongoing challenges from pricing volatility, geopolitical tensions including conflict involving Iran, longer lead times and tariffs. Positive comments focused on demand tied to semiconductors, artificial intelligence infrastructure, defense and data-center buildouts. Several panelists described a mixed picture of opportunistic buying alongside inventory adjustments and shifting market share.

The ISM report is based on a survey of purchasing and supply executives and is considered a leading indicator of economic health because factories respond quickly to shifts in demand. The July data suggest manufacturers continue to benefit from solid domestic orders and technology-related investment even as cost pressures and supply-chain frictions persist.

The next ISM manufacturing report, covering August, is scheduled for release in early September.