Manufacturing remained on the right side of growth in July for the seventh consecutive month, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).
The report’s benchmark reading, the PMI, came in at 55.6 (a reading above 50 indicates growth), topping June by 2.3% and marking the highest monthly tally going back to May 2022’s 55.9. ISM added that the overall economy grew, at a faster rate, for the 21st consecutive month.
The July PMI reading was 4.3% above the 12-month average of 51.3, with July marking the highest and December’s 47.9 marking the lowest for that period.
ISM reported that 15 manufacturing sectors expanded in July: Printing & Related Support Activities; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; Nonmetallic Mineral Products; Transportation Equipment; Miscellaneous Manufacturing; Textile Mills; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; Wood Products; Plastics & Rubber Products; Furniture & Related Products; and Fabricated Metal Products. The lone contracting sector was Chemical Products.
ISM cited the following key metrics for July:
- New Orders: 56.7, up 0.7%, growing, at a faster pace for the seventh consecutive month, with 12 sectors reporting growth;
- Production: 58.5, up 6.6%, growing, at a faster rate, for the ninth consecutive month, marking its highest reading since November 2021’s 60.5, with 12 sectors reporting growth;
- Employment: 52.8, up 3.1%, growing after 32 months of contraction, and hitting its highest level since August 2022’s 54.2, with six sectors reporting growth;
- Supplier Deliveries: 58.9 (readings above 50 indicate slower deliveries), up 1.5% compared to June, slowing for the eighth consecutive month, with 13 sectors reporting slower deliveries;
- Inventories: 51.2, down 0.2%, growing, at a slower rate for the second consecutive month, with eighth sectors reporting higher inventories;
- Customers’ Inventories: 40.7, down 1.6%, remaining too low at a faster rate for the 22nd consecutive month, with two sectors reporting higher inventories; and
- Prices: 71.1, down 1.9% off of June’s 73.0, increasing, at a slower rate, for the 22nd consecutive month, with 14 sectors reporting higher prices
Economic conditions, tariffs, and the ongoing Iran conflict were among the main themes cited in panelists’ comments.
“Continued tariffs on products utilized in our product lines are being monitored by the business, which is working to mitigate or limit tariff risk,” said a Transportation Equipment panelist. “Geopolitical risk, especially in the Middle East, pertaining to commodity and energy markets remains a concern. There has been some increased cost and transit time for rerouted shipments due to conflicts in the Red Sea, Strait of Hormuz and Suez Canal.”
An Electrical Equipment, Appliances & Components panelist said that the pricing volatility and lead-time extensions in this market are arguably worse than the pandemic area.
“During COVID-19, we saw a surge of price hikes and inventory buy-ups, which caused constraints that eventually leveled out,” the panelist said. “We are seeing nothing but consistent upward trends for both pricing and lead times that show no signs of slowing down. Specifically, 5-percent to 25-percent price increases for printed circuit board assembly components and 15-percent to 45-percent increases for bare boards are negatively impacting customer demand outlook into next year. This isn’t sustainable.”
In an interview with LM, Susan Spence, Chair of ISM’s Manufacturing Business Survey Committee, said that the report’s findings were notable on various fronts.
“Certainly, employment has finally gotten to where we were hoping it would,” said Spence. “Manufacturing CEOs have deal with a lot, like changing tariff levels and what may happen next and not making any sudden [decisions] because new orders were not flowing. So, now, after seven months of new order gains, nine months of production gains, and seven months of backlog of orders gains [up 5.5% to 55.0 in July], it has led to more hiring. And the sentiment for hiring versus managing downward has been turning ever so slightly in the right direction for a few months.”
Addressing pricing, which was at 84.6 as recently as April, Spence noted that the volatility has seen declines over the last couple of months, amid the stop-and-start nature of the Iran conflict, which she likened to tariffs, in that it has created uncertainty.
As for the ongoing impact of tariffs on manufacturing, she said their key impact was related to order flows stopping, coupled with companies not hiring.
“When you’re looking at a 50% swing in your raw materials costs because of tariffs from the country your unlucky enough to be importing from, that will stop things,” said Spence. “The war remains an issue, but, at least, it has been relatively short-term—and maybe those suppliers or these companies are passing prices through, or maybe not. But the things that were driving contraction, in my opinion, over the last year, have been largely settled. It feels like the conditions that were stopping growth have settled down.”
To that end, Spence cited recent improvements in consumer confidence and declines in unemployment claims, which, she said, serves as signs for companies seeing gains in new business opportunities. But, at the same time, she said that risks remain, too.
“The Iran war definitely continues to be a risk for getting things through the Strait of Hormuz, with lead times starting to be a factor, as does pricing volatility,” said Spence. “Some of that is due to competition for things like semiconductors and data center buildouts, but by and large, not only are the numbers finally turning to the right direction consistently, so is the sentiment. If you look at the PMI and the sectors that are in contraction that are not growing, it is only chemical products, out of the top six sectors, and that is 20% of manufacturing GDP, whereas in November 85% of manufacturing GDP was in contraction.
As for the remainder of 2026 on the manufacturing front, Spence first took a look back to November, when the PMI was at 48.0, and has subsequently increased to nearly 56.0, which she described as a huge difference, with that growth occurring during the Iran war and ongoing tariff-related challenges.
“Despite things that were harmful, there was some underlying strong economic growth,” she said. “If we did not have the ‘Mag 7’ and the AI data center buildout, would the sector be slumping? Maybe, it would. But, for now, jobs are expanding in manufacturing, and even if consumer confidence is down, consumers are still buying so that is good. It is just that it is not equally good for everybody.”
