July US Manufacturing PMI at 55.6 Percent, Production at Highest Level in Almost Five Years

Economic activity in the US manufacturing sector expanded in July for the seventh consecutive month and at its fastest rate in more than four years, according to the latest ISM Manufacturing PMI Report. The Manufacturing PMI registered 55.6 percent in July, 2.3 percentage points above the June figure and the highest reading since May 2022.

Three of the four demand indicators—the New Orders, Backlog of Orders, and New Export Orders indexes—were in expansion, while the Customers’ Inventories Index remained in “too low” territory, contracting at a faster rate. The New Orders Index expanded for the seventh consecutive month after four straight readings in contraction, registering 56.7 percent, up 0.7 percentage point compared with June’s figure. The Backlog of Orders Index registered 55 percent, up 4.5 percentage points compared with June. The New Export Orders Index returned to expansion territory with a reading of 53 percent, 4.5 percentage points higher than in June.

The Customers’ Inventories Index reading of 40.7 percent was 1.6 percentage points lower than in June. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.

Regarding output, the Production Index expanded for the ninth month in a row. The July reading of 58.5 percent was 6.3 percentage points higher than in June and the highest figure since November 2021. The Employment Index increased 3.1 percentage points to enter growth territory for the first time in 33 months. Sixty percent of panelists reported that their companies were hiring, while 40 percent indicated that managing headcount remained the norm.

Inputs, defined as supplier deliveries, inventories, prices, and imports, were mixed. The Supplier Deliveries Index increased 1.5 percentage points, while the Inventories Index declined 0.2 percentage point but remained in expansion. The Prices Index provided some relief, decreasing month over month for the third consecutive month to 71.1 percent from 73 percent in June. The Imports Index registered 55.7 percent, 2.8 percentage points higher than in June.

Thirty-eight percent of the comments were positive, while 62 percent were negative. Price volatility was mentioned in 57 percent of the negative comments, the Iran war in 43 percent, increasing lead times in 22 percent, and tariffs in 18 percent.

Twenty percent of the sector’s gross domestic product (GDP) contracted in July, compared with 5 percent in June. However, no share of manufacturing GDP was in strong contraction, defined as a composite PMI of 45 percent or lower, compared with 3 percent in June. Of the six largest manufacturing industries, four—Transportation Equipment; Machinery; Computer & Electronic Products; and Food, Beverage & Tobacco Products—expanded in July.

The 15 manufacturing industries reporting growth in July, listed in order, were 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 only industry in contraction was Chemical Products.

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