U.S. Manufacturing PMI Reaches Its Highest Level Since 2022

The Institute for Supply Management's Manufacturing PMI rose to 55.6% in July, up 2.3 percentage points from June and above economists' expectations. The reading, the highest since May 2022, marked a seventh consecutive month of expansion, while the prices index showed that input-cost pressure remained elevated.

For context on the scale of the turnaround: as recently as November, the index sat at just 48.0%, deep in contraction territory. Getting from there to nearly 56% in the span of eight months, according to ISM Manufacturing Business Survey Committee chair Susan Spence, represents a genuinely dramatic shift, made all the more notable because it happened while manufacturers were simultaneously navigating the Iran conflict and a moving target of tariff policy.

Breadth of manufacturing growth

What made July's report stand out wasn't just the topline figure — it was how widely the strength was shared. Four of the report's five major subindexes accelerated compared to June, with only inventories ticking down, and just barely. Fifteen of the sixteen manufacturing industries ISM tracks expanded during the month; chemical products was the lone holdout still in contraction.

New orders came in at 56.7%, extending their growth streak to seven months after spending four straight months shrinking earlier in the year. Backlog of orders jumped 4.5 percentage points to 55%, new export orders climbed to 53%, and production surged to 58.5% from 52.2% the month before — evidence that factories aren't just fielding more orders, they're actually able to keep up with them.

Employment returns to expansion

Perhaps the most closely watched number in the whole report was employment. The Employment Index hit 52.8%, up 3.1 points from June and its first reading in expansion territory in 33 months — essentially the first time factory hiring has grown, rather than shrunk, since well before most of the current tariff regime took hold. Spence described it as a milestone manufacturers had been waiting a long time to reach, noting that seven months of rising orders and nine months of rising production had finally translated into employers actually adding headcount instead of just managing the decline more gently.

Input prices remain elevated

The one blemish on an otherwise glowing report is cost pressure. The Prices Index came in at 71.1%, its third straight monthly decline from a peak near 84.6% back in April, but still elevated enough to signal continued inflation working its way through the supply chain. Spence pointed to three culprits driving the pressure: steel and aluminum costs rippling through the entire value chain, tariffs applied to a wide range of imported goods, and petroleum-based product costs climbing amid the ongoing Middle East conflict.

Sentiment among the executives ISM surveys reflected that tension. Roughly 38% of written comments were positive and 62% negative, though the negative comments increasingly centered on cost volatility and geopolitical uncertainty rather than weak demand. Pricing volatility showed up in 57% of negative remarks, the Iran conflict in 43%, and tariffs in 18%, with one respondent in the transportation equipment sector noting the business is actively working to monitor and limit its exposure to ongoing tariffs on components used in its product lines.

What to watch next

Spence pushed back on the idea that July's jump was a one-off. Speaking to reporters, she said the trend looks like it reflects six-plus months of demand steadily moving in the right direction rather than a statistical blip, though she stopped short of predicting the pace would hold at these levels. Markets, for their part, treated the report as good news with a catch: strong manufacturing activity paired with still-elevated prices gives the Federal Reserve less room to justify cutting interest rates anytime soon, even as it confirms the broader economy, now in its 21st straight month of expansion, continues to hold up better than many had feared.