WASHINGTON — U.S. manufacturing activity accelerated in July to its strongest level in more than four years, signaling broad-based momentum in the factory sector as new orders, production and employment strengthened, though businesses continued to report elevated input costs and persistent supply-chain pressures.
The Institute for Supply Management (ISM) said its Manufacturing Purchasing Managers' Index (PMI) rose to 55.6 in July from 53.3 in June. A reading above 50 indicates expansion in manufacturing. The July figure exceeded economists' expectations and marked the highest reading since mid-2022. The sector has now expanded for seven consecutive months, according to the survey.
The report showed growth across several key indicators. ISM's measure of new orders increased for a seventh straight month, while factory production accelerated and employment returned to expansion territory for the first time in 33 months, suggesting manufacturers stepped up hiring alongside stronger demand. Order backlogs and export orders also improved.
Manufacturing activity has been supported by resilient domestic demand, continued investment linked to artificial intelligence infrastructure and businesses placing orders earlier than usual to guard against potential shortages and higher costs associated with geopolitical disruptions, according to economists and survey respondents.
Despite the stronger activity, manufacturers continued to report significant challenges. ISM survey respondents cited volatile raw material prices, longer supplier lead times and supply-chain constraints affecting industries including electronics and machinery. Input costs remained elevated, although the survey's prices index eased from June while staying at levels consistent with ongoing inflationary pressure.
Fifteen of the manufacturing industries tracked by ISM reported expansion in July, while only a small number contracted, underscoring the breadth of the recovery. Chemical products remained among the weaker-performing sectors.
The manufacturing data followed other indicators pointing to continued resilience in the U.S. economy. The ISM's non-manufacturing survey released later showed the services sector also remained in expansion territory in July, although businesses reported rising input costs and supply constraints similar to those seen in manufacturing.
Economists said the combination of stronger factory activity and persistent price pressures could reinforce expectations that the Federal Reserve will remain focused on inflation as it assesses the outlook for monetary policy.
Markets will continue to monitor upcoming employment, inflation and production data for further evidence on whether the manufacturing sector's recent momentum can be sustained in the coming months.
