Survey Shows Dip in U.S. Manufacturing Activity

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Written by Danny Levin, Deputy Editor for IIR News Intelligence (Sugar Land, Texas)

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Summary

U.S. manufacturing activity dipped in August, according to the Institute of Supply Management's (ISM) Purchasing Managers Index (PMI) survey, as the Iran war and economic uncertainty continue to be a challenge.

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Manufacturing Activity Declines

Economic activity in U.S. manufacturing dipped in August, according to The Institute of Supply Management's (ISM) latest Purchasing Managers Index survey, with respondents further expressing negative sentiment around the Iran war and ongoing economic uncertainty.

The PMI, which tracks 18 manufacturing sectors in the U.S., registered 54.6% in August, down from 55.6% in July--indicating slower growth month-over-month. Any reading over 50% indicates expansion in the manufacturing economy. July's reading was the highest since May 2022.

According to Industrial Info Resources data, there is $737 billion worth of projects under construction in the U.S. Industrial Manufacturing Industry; more than half of the investment is attributed to data centers and semiconductors. The Global Market Intelligence (GMI) Project Database offers a full list of projects.

Any reading under 50% indicates contraction in the manufacturing economy.

"In August, U.S. manufacturing activity remained in expansion territory, though it has lost ground in a number of key measures--namely, the New Orders, Backlog and Imports indexes," Susan Spence, chair of ISM's Manufacturing Business Survey Committee, said in a summary of findings.

In addition, Supplier Deliveries (a measure of delivery times) slowed at a faster rate, "indicating a continuing slowdown of the supply chain."

In terms of output, August's Production index grew at a slower pace compared with July.

Overall, survey respondents weren't solely negative: Spence noted 42% of the respondents' comments were positive (up from 38% in July) and 58% negative (down from 62% last month).

Pricing volatility was mentioned in 57% of the negative comments, flat from July's level, and the Iran war 30% (down from 43%). However, increasing lead times was mentioned in 46% (up from 22%) and tariffs 29% (up from 18%.) Most comments mentioned multiple factors.

Economic Headwinds

Although August's Prices Index--an indicator of input and raw materials costs--was unchanged from July, it still indicates raw materials prices increased for the 23rd straight month.

The elevated index continues to be driven by increases in steel and aluminum prices impacting the entire value chain; tariffs applied to many imported goods; and increases in petroleum-based products as a result of the recent Middle East conflict.

Tariffs could be more of an issue with time as the U.S. and Canada embroil themselves in a contentious tit-for-tat trade dispute that includes new tariffs. For more information, see August 27, 2026, article - Energy Spared in U.S.-Canadian Trade War

Survey respondents had much to say about the economic headwinds facing U.S. manufacturing.

One comment from a Miscellaneous Manufacturing respondent seemed to summarize a common sentiment: "Commentary this month echoes that of recent months," citing significant availability/price challenges in commodities heavily consumed by artificial intelligence (AI); great uncertainty over when the Iran conflict will end; and another round of shifting U.S. tariff policy.

Meanwhile, a Machinery survey respondent said, "Prices continue to rise on all goods. Suppliers are noting that energy, steel and labor costs are increasing very quickly."

One from Computer & Electronic Products said the "supply chain situation, especially in the electronics market, is going through another crisis even bigger and more complicated than during and post COVID-19. That's mainly due to AI infrastructure and uncertainties in the global market (for oil and other critical supplies) due to war in the Middle East and more complication on trade rules."

The ISM considers semiconductors and data-center components to be part of the latter sector.

Strong U.S. Manufacturing Capex

IIR data show data centers account for about 50% of the total investment value of U.S. Industrial Manufacturing Industry projects under construction.

This includes two high-dollar equipment additions at AI data centers that support Elon Musk's xAI Corporation, in Southaven, Mississippi and Memphis, Tennessee.

Semiconductor projects underway include Texas Instruments Incorporated's estimated $11 billion expansion of its semiconductor fabrication site in Lehi, Utah. Dubbed LFAB2, the project entails constructing a second plant in order to further fabricate 300-millimeter wafers to support AI, industrial and automotive applications. Readers can view the project report.

Key Takeaways

• The ISM's PMI survey shows U.S. manufacturing activity in August dipped month-over-month.
• The Iran war and tariffs remain a concern for manufacturers.
• $737 billion: value of projects under construction in the U.S. Industrial Manufacturing Industry. About half is attributed to data centers.

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).