- Lead. The Institute for Supply Management reported July’s manufacturing PMI at 55.6% on August 3 — the highest reading since May 2022 and the seventh consecutive month of expansion.
- Fact. The employment sub-index broke into expansion for the first time in 33 consecutive months, a meaningful turn for a sector that had been shedding workers throughout the rate-hiking cycle.
- Stake. The data complicates Fed Chair Kevin Warsh’s hold-steady posture: a resilient manufacturing economy alongside persistent inflation strengthens the case for the three dissenting FOMC members who voted for an immediate rate increase on July 29.
What the Data Shows
The ISM’s July Manufacturing Report on Business, released on the first business day of August, put the headline PMI at 55.6% — beating the consensus estimate of 54.0% by 1.6 percentage points and rising from 53.3% in June. A reading above 50% signals expansion across the manufacturing sector. The July reading is the strongest since May 2022, when the post-pandemic goods boom was still running hot.
All five headline components were in expansion territory: production, new orders, employment, supplier deliveries, and inventories. The production sub-index rose by more than six points compared with June, reaching its highest level in nearly five years. New orders came in at 56.7%, extending their expansion streak to seven consecutive months. New export orders and imports both reached multi-year highs, consistent with a broader pickup in cross-border trade since the Section 301 tariff phase replaced the blanket Section 122 regime.
The Employment Reversal
The employment sub-index’s move into expansion is the most significant single data point in the release. US manufacturing had shed workers for 33 consecutive months — one of the longest stretches of factory employment contraction on record — under pressure from high financing costs, tariff-driven supply chain disruption, and an inventory correction that suppressed new production orders through most of 2024 and 2025.
July’s reversal suggests that those headwinds have eased sufficiently to prompt factory managers to begin hiring. Whether the shift represents a durable inflection or a single-month anomaly will become clearer when August data is released in early September, but the break in the streak is itself statistically notable.
Prices and the Fed
The Prices Paid sub-index fell for a third straight month in July, reaching a five-month low. That is welcome data for a Federal Reserve that held rates at 3.5%–3.75% on July 29 against the dissent of three members pushing for an immediate increase. Goods-sector disinflation, if sustained, would give the FOMC’s hold majority more room to wait before acting.
The ISM Prices Paid component is a leading indicator for the goods segment of the Consumer Price Index. Its third consecutive decline will be tracked by both camps at the Fed: the hawks will note that services inflation and energy costs — neither of which shows up in the manufacturing PMI — remain their primary concern, while the doves will point to the Prices Paid trend as evidence that imported and domestically produced goods are not adding to aggregate price pressure.
What Comes Next
Friday’s Bureau of Labor Statistics jobs report for July is the next major data release. June nonfarm payrolls were a weak 57,000, with the unemployment rate at 4.19%. A strong July print, combined with the July ISM beat, would push probability-weighted expectations for a September rate increase substantially higher. Fed funds futures markets will reprice in response to each piece of data this week, with the ISM result already shifting sentiment in a more hawkish direction Monday morning.