The U.S. manufacturing sector continues to demonstrate remarkable resilience in its post-pandemic recovery, according to the latest ISM Manufacturing PMI data for July. While facing significant headwinds, the industry maintains strong expansion momentum that bodes well for broader economic recovery.
PMI Index: Sustained Expansion Despite Slight Dip
The July PMI reading of 59.5, while slightly lower than June's figure, marks the 14th consecutive month of expansion (readings above 50 indicate growth). This stability aligns with the 12-month average, suggesting the recovery is neither temporary nor fragile. The index peaked at 64.7 in March 2021 and hit its low of 55.6 in August 2020, reflecting a consistent upward trajectory despite periodic fluctuations.
Sector Performance: Broad-Based Growth With One Exception
Of the 18 manufacturing sectors tracked by ISM, 17 reported growth in July. The expanding sectors include:
- Furniture and related products
- Printing and related support activities
- Apparel, leather and allied products
- Computer and electronic products
- Machinery
- Transportation equipment
- And 11 other key industries
The sole contracting sector was textile mills, highlighting specific challenges facing that industry including potential raw material shortages and labor issues.
Key Indicators: Mixed Signals With Underlying Strength
Several critical sub-indices reveal the complex dynamics driving manufacturing growth:
New orders: The index declined slightly to 64.9 but remains robust, with 15 of 18 industries reporting growth. This 14-month expansion streak confirms sustained demand.
Production: Dipped to 58.4, indicating some capacity constraints, though 16 industries still reported output increases.
Employment: Rebounded to 52.9 after June's contraction, signaling labor market improvement that could ease production bottlenecks.
Supply Chain and Pricing Pressures
The supplier deliveries index remained elevated at 72.5, reflecting persistent supply chain disruptions now in their 65th month. Other concerning metrics include:
- Order backlogs rising to 65.0 (13 months of increases)
- Inventory levels dropping to 48.9
- Client inventories hitting a record low of 25.0
While the prices index fell 6.4 points to 85.7, input costs remain historically high, continuing a 14-month upward trend.
Industry Perspectives: Cautious Optimism
ISM survey respondents highlighted ongoing challenges:
"Supply chains are recovering gradually, like water moving through a pipe," noted a chemical products executive. "Transportation bottlenecks currently outweigh material shortages."
A metals industry representative reported strong demand but labor shortages limiting production capacity to just 75% of orders.
Expert Analysis: Transition Toward Normalization
ISM Manufacturing Business Survey Committee Chair Tim Fiore characterized July as a transition month with positive developments:
- Labor returning to manufacturing sectors
- Supplier deliveries showing early signs of stabilization
- Production constrained more by inventory than labor issues
Fiore projected potential PMI improvement to 65-66 if labor and supply chain conditions continue normalizing, particularly after enhanced unemployment benefits expire in September.
Outlook: Challenges and Opportunities
The manufacturing recovery faces four primary obstacles:
- Persistent supply chain disruptions
- Acute labor shortages
- Rising input costs
- Geopolitical trade uncertainties
However, several factors support continued expansion:
- Strong consumer demand and pent-up savings
- Increased business investment in automation and efficiency
- Global economic recovery boosting exports
- Structural advantages in high-tech manufacturing
The sector's resilience demonstrates its crucial role in the broader economic recovery, though sustained growth will require addressing labor and supply chain constraints while managing inflationary pressures.