(Aug 3): US manufacturing activity expanded in July at the fastest pace in more than four years as demand remained strong, production surged and firms added workers.

The Institute for Supply Management’s (ISM) July manufacturing gauge rose to 55.6, the highest since May 2022, according to data out on Monday. Readings above 50 indicate growth, and the sector has now been above that mark for seven consecutive months.

The gauge for production rose to 58.5, its highest level since late 2021, while the employment measure indicated manufacturers increased headcount for the first time since September 2023. New orders growth — a sign of demand — also picked up.

The manufacturing sector has gained momentum this year, with factories benefitting from resilient consumer demand, solid business investment and government outlays on defense.

All but one manufacturing industry reported growth in July, with chemical products being the only sector that contracted. Printing, apparel and electrical equipment were among the industries that grew.

The report reflects a volatile month in the Middle East. The interim peace deal between the US and Iran effectively collapsed, driving up oil prices. After a brief respite in hostilities, fighting in the five-month war flared again towards the end of the month as attacks spread throughout the region.

Factories continued to face longer lead times on supplier deliveries and rising prices for raw materials. ISM’s prices index fell to 71.1 in July, the lowest in five months but still significantly higher than at the beginning of the year.

The report pointed to price pressures including tariffs and increased costs for petroleum-based products due to conflict in the Middle East. 

ISM’s gauge of exports for July was the highest since March 2022 and a measure of imports climbed to its best mark since June 2021.

“We are seeing a very opportunistic and reactive marketplace. If shortage items become available, we opportunistically buy. Some customers are reducing inventory; others are pulling forward demand.” — Chemical Products

“We continue to operate in a favourable demand environment driven by growth in the semiconductor, AI, advanced packaging, and high-performance computing markets.” — Computer & Electronic Products

“Demand for our semiconductor end products and connectivity [power, networking and photonics] is booming. Similarly, defense is at an all-time high, with most of our product orders going to these two industries.” — Machinery

“Aerospace and defence demand continues to be strong and growing, based on business backlogs. Competing for scare supply — electronics, certain critical minerals and other categories — is challenging on-time fulfillment for our supply chains.”  —Transportation Equipment

“No normalcy in sight in the world of metals. It makes me yearn for the coronavirus pandemic chaos, which was more manageable than whatever this is that we are in.” — Primary Metals

“The pricing volatility and lead-time extensions in this market are arguably worse than the pandemic era... We are seeing nothing but consistent upward trends for both pricing and lead times that show no signs of slowing down.” — Electrical Equipment, Appliances & Components

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