#United States #Tempe #Manufacturing PMI #ISM Report #Economic Activity

Overview of the Manufacturing Sector in July 2025

Economic activity in the U.S. manufacturing sector revealed a concerning trend in July 2025, with the Manufacturing Purchasing Managers' Index (PMI®) recording a value of 48%. This figure represents a 1% decline from June, indicating the manufacturing landscape has experienced five consecutive months of contraction. Prior to this downturn, a brief two-month expansion was noted

Key Insights from the ISM Report

According to Susan Spence, the Chair of the ISM Manufacturing Business Survey Committee, the overall economic environment continues to expand, having achieved a growth streak of 63 months since a brief contraction in April 2020.

However, the Manufacturing PMI® subindexes have painted a mixed picture:

• - New Orders: The New Orders Index marked a reading of 47.1%, reflecting a sixth month of contraction, though it was slightly better than June's 46.4%.
• - Production: Encouragingly, the Production Index rose to 51.4%, suggesting output is growing albeit at a cautious pace.
• - Employment: The Employment Index fell to 43.4%, signaling continued concern about workforce levels in the manufacturing sector.

Supplier Deliveries and Inventories

The Supplier Deliveries Index, which inversely indicates delivery performance, suggested faster deliveries at 49.3%, reversing the trend of slower supplier performance seen over the past several months. This improvement hints at a potential easing in supply chain issues. The Inventories Index also contracted slightly to 48.9%, further illustrating the adjustments companies are making to align stock levels with demand.

Price and Demand Dynamics

Interestingly, while the Prices Index, at 64.8%, still indicates an increasing price trend for raw materials, it is also showing signs of slowing growth. With commodities like steel and aluminum continuing to impact pricing due to their gradual uptick, these costs are a key factor affecting overall manufacturer profitability.

Conversely, the contraction observed in new export orders (46.1%) symbolizes ongoing trade tensions and demand challenges, transforming the landscape where manufacturers operate. Accordingly, significant caution remains regarding planning and forecasting future orders.

Sector Performance and Industry Insights

In July, a notable 79% of the manufacturing sector's GDP faced contraction. The extent of contraction escalated, especially with 31% of GDP strongly contracting (composite PMI® of 45% or lower). This reinforces the struggles across many industries where none of the six largest manufacturing segments reported growth this month.

Among the sectors reporting any semblance of growth were Apparel, Leather & Allied Products and Miscellaneous Manufacturing, contrasting with the decline seen in industries such as Paper Products, Computer & Electronic Products, and Transportation Equipment.

Respondents' Feedback

Feedback from respondents captured a range of sentiments reflecting the challenging market conditions:

• - Tariff Concerns: Many expressed exhaustion over tariff-related uncertainties and difficulties in forecasting costs amidst ongoing geopolitical tensions.
• - Labor Market Adjustments: Comments indicate a prevailing trend toward reducing workforce numbers rather than hiring, laying bare the cautious optimism that is currently characterizing the sector's recovery efforts.
• - Healthcare Sector Stability: In sectors like healthcare, some manufacturers reported steady business patterns, although they are evaluating risks associated with geopolitical dynamics.

Conclusion

The July 2025 Manufacturing ISM® Report highlights a period of continued contraction underscored by slower demand, labor market uncertainty, and the ongoing struggle with raw material prices. As manufacturers navigate these challenges, a change in strategy focused on efficiency and supply chain adjustments could be crucial for future stabilization and growth. Keeping a close eye on demand recovery indicators and geopolitical influences will be instrumental in shaping the future outlook of the manufacturing sector.