U.S. manufacturing activity reached its highest level in more than four years in July, according to the Institute for Supply Management. Stronger factory orders and hiring supported the expansion, while elevated input costs and supply-chain disruptions continued to influence inflation and production conditions.
Key Takeaways
- U.S. manufacturing activity rose to its strongest level since May 2022.
- Factory orders and manufacturing employment both increased in July.
- Supplier delivery times lengthened as supply-chain constraints persisted.
- Input prices remained elevated despite easing slightly from June.
- Manufacturing growth continued across most major industrial sectors.
U.S. manufacturing activity expanded at its fastest pace in more than four years during July as stronger factory demand, higher employment and rising new orders offset ongoing supply-chain disruptions and elevated production costs, according to data released by the Institute for Supply Management (ISM).
The ISM Manufacturing Purchasing Managers Index (PMI) increased to 55.6 in July from 53.3 in June. The reading exceeded economists’ expectations and marked the highest level since May 2022. A PMI reading above 50 indicates expansion across the manufacturing sector.
The latest report showed that manufacturers continued to experience solid demand while managing higher costs for raw materials, transportation and industrial components. Although price pressures eased slightly from the previous month, manufacturers continued to report elevated input costs that remained well above historical averages. The latest figures build on earlier signs that U.S. factory output grows despite manufacturing decline in key industrial sectors.
ISM Manufacturing PMI Climbs to Highest Level Since 2022
The July PMI reflected broad-based improvement across the manufacturing sector. Fifteen manufacturing industries reported growth during the month, including electrical equipment, transportation equipment, machinery, primary metals and computer and electronic products. Chemical products was the only industry to report contraction.
Manufacturing represents approximately 9.4% of the U.S. economy, making the sector an important indicator of overall business conditions. The July data suggested production activity remained resilient despite continued supply constraints affecting several industries.
The stronger reading also followed reports of increased factory production during the second quarter. Businesses continued rebuilding production schedules while maintaining relatively lean inventory levels.
New Orders and Export Demand Increase
Demand indicators remained positive throughout July.
The ISM new orders index increased to 56.7, up from 56.0 in June, indicating continued expansion in customer demand. Export orders also strengthened, supporting production activity among manufacturers serving international markets.
Growth in unfinished work signaled that factories continued receiving orders faster than they could complete them. The increase in backlogs reflected sustained demand across several manufacturing segments.
Business inventories remained relatively low, allowing manufacturers additional capacity to increase production as orders continued to expand.
Factory Orders and Employment Support Industrial Growth
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Employment conditions improved alongside stronger production activity.
The ISM manufacturing employment index rose to 52.8 in July after registering 49.7 in June. The increase returned factory employment to expansion territory for the first time in 33 months and represented its highest reading since August 2022.
According to the ISM survey, a majority of respondents reported hiring activity during the month while others maintained existing staffing levels. The improvement reflected stronger production requirements as manufacturers responded to higher order volumes.
The combination of expanding employment, stronger new orders and higher production indicated that manufacturers increased operating capacity to support current demand.
Several industries linked employment gains to improved business conditions, particularly those producing industrial equipment, transportation products and technology-related components.
Supply Constraints Continue to Affect Production Conditions
Manufacturers continued reporting longer delivery times for materials and components despite stronger production activity.
The ISM supplier deliveries index increased to 58.9 from 57.4 in June. Readings above 50 indicate slower supplier deliveries, suggesting continued pressure on supply chains.
Supplier Deliveries Slow Across Key Industries
Manufacturers reported extended lead times for several industrial inputs, including semiconductors, electrical components and selected critical minerals.
Companies also identified higher freight costs affecting both domestic trucking and international shipping. Longer transportation times for shipments moving through major global trade routes continued influencing production schedules for some manufacturers.
Several respondents also cited ongoing competition for electronics components associated with increased artificial intelligence infrastructure investment. Higher demand for advanced computing equipment continued placing pressure on supplies of integrated circuits, memory products and related technologies.
These supply constraints affected purchasing decisions while extending production timelines across multiple manufacturing sectors.
Elevated Input Costs Maintain Inflation Pressure on Manufacturers
Manufacturing input costs remained elevated throughout July despite a modest decline from June levels.
Prices Paid Index Remains Historically Elevated
The ISM prices paid index measured 71.1 in July, compared with 73.0 during the previous month. Although the reading declined slightly, it continued indicating widespread increases in production costs.
Manufacturers reported higher prices across numerous commodities, including aluminum, copper, semiconductors, electrical components and rare earth materials. Freight expenses for both truck and ocean transportation also remained elevated. Similar challenges were examined in an earlier report on rising manufacturing input costs as energy prices and supply disruptions affected production expenses.
Higher energy prices and transportation costs continued affecting procurement expenses across multiple industries. These conditions contributed to ongoing inflation pressures within the manufacturing sector even as some commodity prices moderated during portions of the reporting period.
The combination of elevated material costs and slower supplier deliveries increased operating expenses for manufacturers while influencing purchasing strategies and production planning.
Manufacturing Expansion Shapes the Economic Outlook
The July manufacturing data indicated that factory activity continued expanding despite persistent cost pressures and supply constraints.
Growth in new orders, employment and production suggested demand remained strong across much of the manufacturing sector. At the same time, elevated manufacturing input costs demonstrated that inflationary pressures had not fully eased for producers.
Business inventories remained relatively low after several consecutive quarters of declines, providing room for manufacturers to increase production as demand continued.
The latest ISM report also showed that industrial growth extended across most major manufacturing industries rather than being concentrated within a small number of sectors. Expansion in machinery, transportation equipment, primary metals and technology-related manufacturing reflected broad participation in the July increase. Broader industrial developments have also been reflected in global manufacturing production shifts affecting supply networks and production strategies.
The combination of stronger factory activity and continued price pressures provides important context for assessing industrial performance and inflation conditions in the U.S. economy. Manufacturing data remains one of several indicators used to evaluate business activity, production trends and cost conditions across the industrial sector.
Frequently Asked Questions
What did the latest ISM manufacturing PMI report show?
The ISM Manufacturing PMI rose to 55.6 in July from 53.3 in June, marking the highest reading since May 2022 and indicating continued expansion in U.S. manufacturing activity.
Why did U.S. manufacturing activity increase in July?
Manufacturing activity strengthened because of higher factory orders, increased hiring, expanding export demand and continued production growth across most manufacturing industries.
Which manufacturing indicators improved in the latest report?
The report showed gains in the Manufacturing PMI, new orders, factory employment and export orders. Production also remained supported across fifteen manufacturing industries.
How are higher input costs affecting U.S. manufacturers?
Manufacturers continued reporting elevated costs for raw materials, freight, semiconductors, electrical components and metals, while longer supplier delivery times affected production schedules.
What do the latest manufacturing data suggest about inflation?
The ISM prices paid index remained elevated at 71.1, indicating that manufacturers continued experiencing inflationary cost pressures despite a slight decline from the previous month.
