Economic activity in the U.S. manufacturing sector expanded in August for the eighth consecutive month to 54.6%, but that was 1 percentage point lower than July, according to the Institute for Supply Management’s latest Purchasing Managers’ Index.
The overall economy grew for the 22nd month in a row, ISM reported. A figure below 50% indicates an industry in contraction.
The S&P Global U.S. Manufacturing PMI registered 53.9%, unchanged from July.
“Although we’re in the eighth month of an expansion trend, the Iran war and tariffs threats continue to be the biggest concern to the manufacturing economy,” Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said during a media call on Monday.
In August, 42% of the comments were positive and 58% were negative, with a 1-to-1.4 ratio of positive to negative sentiment, Spence said in a news release. Pricing volatility was mentioned in 57% of negative comments, increasing lead times in 46%, the Iran war in 30% and tariffs in 29%.
Five of the six largest manufacturing industries — transportation equipment, petroleum and coal products, machinery, computer and electronic products, and food, beverage and tobacco products — expanded in August.
The New Orders Index expanded for the eighth consecutive month registering 53.7%, down 3 percentage points compared to July’s figure of 56.7%. The August reading of the Production Index at 58.3% was 0.2 percentage point lower than July’s reading of 58.5%.
The Prices Index remained in expansion, or “increasing” territory, registering 71.1%, the same reading as July. The Backlog of Orders Index registered 51.8%, down 3.2 percentage points compared to 55% in July.
The Employment Index reading of 51.2% was down 1.6 percentage points from July’s figure of 52.8%. The manufacturing industry added 5,000 jobs in July.
The Supplier Deliveries Index indicated slowing performance for the ninth month in a row after one month in “faster” territory. The reading of 59.3% was up 0.4 percentage point from its July reading of 58.9%. Supplier Deliveries is the only ISM PMI Report index in which a reading of above 50% indicates slower deliveries.
The Inventories Index registered 50.6%, down 0.6 percentage point compared to July’s reading of 51.2%. The Customers’ Inventories Index reading of 42.8% was 2.1 percentage points higher compared to the 40.7% recorded in July.
The New Export Orders Index gained 0.2% point in August for a reading of 53.2%, versus 53% last month. The Imports Index registered 52.5%, a loss of 3.2 percentage points since July’s reading of 55.7%.
Three of ISM’s four demand indicators — New Orders, Backlog of Orders and New Export Orders — were in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a faster rate. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.
Prices, employment bright spots
“In August, U.S. manufacturing activity remained in expansion territory, though it has lost ground in a number of key measures — namely, the New Orders, Backlog and Imports indexes,” Spence said in the news release. “Of the five subindexes that make up the PMI, the only one that grew faster than last month was Supplier Deliveries, indicating a continuing slowdown of the supply chain.”
Many respondents cited tariffs, inflation and supply chain disruptions as weighing on their businesses.
“The economy is annoying; it is getting in the way of otherwise good business,” one respondent in the chemical products industry said. “We are making great new products but struggling to compete when prices escalate due to things like tariffs and the conflict in the Strait of Hormuz. I fear that the inflation caused by these factors will lead to lower sales and lower spending power of our customers... It’s an uncertain year, our second in a row.”
A respondent in the computer and electronic products industry had similar comments.
“Supply chain situation, especially in the electronics market, is going through another crisis even bigger and more complicated than during and post COVID-19,” the respondent said. “That’s mainly due to AI infrastructure and uncertainties in the global market (for oil and other critical supplies) due to war in the Middle East and more complication on trade rules.”
The steel industry has also been affected, most recently by 50% tariffs imposed by Canada that mirrored new U.S. tariffs.
Overall, Spence was less upbeat about this month’s report than she was about last month’s.
“This is the first month where I’ve seen over a three-point drop in three important areas,” she said. “Demand sentiment is still overall positive, but less positive. So the question I have is, ‘What’s going on with customers?’ I don’t have an answer to that... I’m starting to see warning signs."
