- Eight-month streak intact. The ISM Manufacturing PMI came in at 54.6% in August 2026, down one percentage point from July’s 55.6% but comfortably above the 50% threshold that separates expansion from contraction.
- Prices remain the problem. The prices paid index held at 71.1% for the 23rd consecutive month, driven by steel, aluminium tariffs, and energy costs linked to Middle East tensions — handing Federal Reserve chair Kevin Warsh additional reason to hold rates elevated at the September 16 FOMC meeting.
- Sentiment turning. For the first time in the current expansion cycle, negative commentary from purchasing managers outweighed positive commentary, with 58% of respondents flagging concerns versus 42% expressing optimism.
The Institute for Supply Management released its August 2026 Manufacturing PMI on September 1, showing that US factory activity expanded for the eighth consecutive month — a run that began in January 2026 after a 10-month contraction period. The headline reading of 54.6% reflected continued strength in production and supplier deliveries but also a softening in new orders and employment relative to July’s figures.
Subindex Detail
New orders fell three points to 53.7%, still in expansion territory but the weakest reading since April. Production held near recent highs at 58.3%, down only 0.2 points, while supplier deliveries edged up to 59.3% — a reading that indicates slower lead times and typically reflects elevated demand on supply chains.
The employment subindex slipped 1.6 points to 51.2%, a level that points to modest hiring continuing in the manufacturing sector. Customers’ inventories registered 42.8%, a reading classed as “too low,” which ISM chair Susan Spence noted in the release tends to be a positive leading indicator for future production orders: manufacturers will need to replenish downstream stocks.
Of 18 industries tracked, 15 reported expansion in August. Only Wood Products and Chemical Products reported contraction, with respondents in both sectors citing demand softness and inventory destocking. According to the ISM release, overall economic expansion has now continued for 22 consecutive months.
The Inflation Overhang
The detail that will draw the closest attention in Washington is the prices paid reading. At 71.1%, the index has now signalled rising input costs for 23 consecutive months — a sustained run that complicates the Federal Reserve’s calculus as it approaches the September 16 FOMC decision.
Manufacturing respondents attributed price pressure to steel and aluminium costs exacerbated by existing tariff structures, and to energy price increases linked to disruptions in the Strait of Hormuz. Both inputs feed directly into producer price indices that the Fed monitors alongside its preferred PCE inflation gauge — which stood at 3.7% in July, well above the 2% target.
For context, China posted its first expansion in factory new orders in August, adding an external demand tailwind that could sustain US manufacturing momentum into the autumn — but also intensifying competition for the same global inputs that are already driving US prices higher.
What Comes Next
The next major data point in the inflation-versus-growth debate will be the August nonfarm payrolls report, due on September 4. July’s employment data shocked markets by printing at –23,000 — the first negative headline payroll figure of the current economic cycle — raising questions about whether the manufacturing sector’s apparent robustness is reaching the broader labour market. The ISM data, at least through August, suggests that factories are still hiring, if at a slowing pace.