–ISM Manufacturing Index at 9-Month Low of 48.0 vs. 49.0 in June, Consensus 49.5

–ISM CEO Derry: Despite Wall Street Pricing in Imminent Rate Relief, Manufacturers Need to See Actual Cut Before Resuming Capex

(MaceNews) – U.S. manufacturing activity was in contraction for the fifth straight month in July as President Trump’s idea to protect American firms from competition from overseas with stiff tariffs continues choking new orders, keeping output fragile and prompting more job cuts, data from the Institute for Supply Management released Friday showed.

The ISM manufacturing sector purchasing managers’ index unexpectedly slumped by a full percentage point to a nine-month low of 48.0 in July after rising 0.5 point to 49.0 in June, coming in much weaker than the consensus forecast of 49.5. The PMI was in slight expansion at 50.3 in February and 50.9 in January, the first time the index had popped above the neutral line of 50 since October 2022 (50.3).

“In July, U.S. manufacturing activity contracted at a faster rate, with declines in the supplier deliveries and employment indexes contributing as the biggest factors in the 1-percentage point loss of the manufacturing PMI,” Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said in a statement.

“It was not a good number, with the composite index coming in at 49,” ISM Chief Executive Thomas Derry, who sat in for Spence, told reporters. “There are some concerning undercurrents in that number. 79% of manufacturing GDP contracted in the month of July (up from 46% in June), which was the highest we had since December 2024.”

“The dominating name of the game remains tariffs,” Derry said. “There were some notable commentaries about finally beginning to think about passing along higher costs of tariffs to their own customers.”

Looking at slightly positive signs, Derry noted production was higher and the new orders index appeared to be reversing its recent downtrend. Washington’s trade deals with some U.S. allies may support the sector going forward, he added.

A tentative trade deal with Japan was announced on July 23 and one with the EU came on July 27, which means most of the ISM survey respondents didn’t have time to digest the latest developments. Instead, they seemed to be looking at the chaos that the Trump tariffs had already caused.

“These tariff wars are beginning to wear us out,” a firm from the apparel, leather and allied products category told the ISM. “It’s been very difficult to forecast what we will pay in duties and calculate any cost savings we’ve had this year. Also, tariffs have disrupted our customs import bond.”

“Tariffs are causing complete uncertainty around sourcing strategies,” a company in the electrical equipment, appliances and components industry said. “A sit-and-wait game for now.”

In the July report, the employment subindex’s plunge to 43.4, the lowest level since the early phase of the pandemic – from March to June 2020 (ranging from 33.3 to 42.7) – shows many companies remain focused on accelerating staff reductions in the face of uncertain near- to mid-term demand.

“For every comment on hiring, there were two on reducing head counts — a fairly wide ratio, historically speaking,” Spence said. “Layoffs were the primary measure, an indication that staff shrinking continues to be urgent.”

However, the hiring-firing ratio in July improved from June, when it was one to 3.2, one of the widest gaps since the ISM began tracking employment comments. The ratio was a milder 1 to 1.4 in May and 1 to 1 in April.

The improvement in July may be due to higher production and about 50% more respondents weighing in on the employment questions than in June.

In addition, some uncertainty around tariffs has cleared, Derry told Mace News. “With a better understanding of reciprocal tariffs (e.g., a 15% baseline), companies may feel more confident holding onto staff or slowing reductions,” he said.

A sharp drop in the supplier deliveries sub-index did push down the overall ISM purchasing managers index but because of the index’s inversed nature, it actually depicts a faster flow of goods, although it was made possible by weak demand.

“The findings in July suggest that supply chain performance is improving as demand is slipping downward,” Spence explained.

“Continued contraction in both the new orders and backlog of orders indexes means that trade issues and other geopolitical tensions are still at play,” she said. “Significant improvement shouldn’t be expected until those issues begin to recede.”

Production levels in July, while improved, remain “fragile” amid continuing softness in new orders, Spence said, adding that respondents in the July survey had a 1-to-1.2 ratio of positive to negative comments regarding output.

Outside the five sub-indexes the ISM uses to calculate the overall PMI, high costs remain a major headache for U.S. manufacturers, thanks to the adverse effects of the Trump tariffs.

“The prices Index reading (well above the neutral line of 50 at 64.8) continues to be driven by increases in steel and aluminum prices that impact the entire value chain, as well as tariffs applied to many imported goods,” Spence said.

Higher prices were reported by 35.4% of respondents in July, down substantially from 45.6% in June and 45.1% in May, but it is still much higher than a low of 12.2% seen in November 2024.

ISM Chief Executive Thomas Derry, who sat in for Spence, told reporters that weak U.S. jobs data for July released Friday raised the odds that the Federal Reserve will lower its policy interest rate in September, and possibly again in December, after leaving the federal funds rate in a target range of 4.25% to 4.5% for a fifth straight meeting this week. The Fed cut rates by a total of 100 basis points last year.

Asked whether expectations of a rate relief would be enough to entice firms to resume investing in new capacity, Derry replied that while financial markets have priced in those Fed moves, manufacturers need to actually see rates reduced before taking action.

Among the five subindexes that directly factor into the manufacturing PMI, the new orders index: 47.1 vs. 46.4 in June. It contracted for the sxith consecutive month in July after three consecutive months of expansion. The latest reading remains below the 12-month moving average (48.3). The index hasn’t indicated consistent growth since a 24-month streak of expansion that ended in May 2022.

The production index: 51.4 at a 17-month high vs. 50.3. It entered expansion territory for the first time in four months in June. Prior to the first two months of 2025, the last time the index registered above 50 was in April 2024 (50.7).

The employment index: 43.4 vs. 45.0, contracting for the sixth month in a row and plunging to the lowest level since the early phase of the pandemic – from March to June 2020 (ranging from 33.3 to 42.7). It popped above the neutral line of 50 in January, indicating the first growth in eight months.

The supplier deliveries index (the only one that is inversed): 49.3 vs. 54.2. Delivery performance of suppliers to manufacturers was faster in July after seven months of slowing. The index rose to 56.1 in May, reaching the highest (the slowest deliveries) since 57.3 in June 2022. Previously, the index slipped into a contraction (faster delivery) in November 2024, preceded by four consecutive months of slower deliveries.

The manufacturing inventories index: 48.9 vs. 49.2. The readings in April and March (53.4) were the index’s highest since December 2022 (51.4). Prior to March 2025, the last time the index was above 50 was in August 2024 (50.2).

Among other subindexes, the prices paid index: 64.8 vs. 69.7 in June, 69.4 in May and 69.8 in April, indicating raw materials prices increased for the 10th straight month (at a slower rate) after a decrease in September 2024 (48.3). The figures from March to June, all above 69. were the highest since 78.5 recorded in June 2022, when price pressures were easing month by month.

The new export index: 46.1 vs. 46.3 in June, 40.1 in May, which was the lowest since 39.5 in May 2020, when it began to pick up from the pandemic-triggered record low of 35.3 in April 2020. It contracted for the fifth consecutive month after expanding in January and February. The 6.5-point decrease in April 2025 was the largest since April 2020, when the index dropped 11.3 points.