ISM: U.S. Manufacturing Activity Contracts for Fifth Straight Month as Tariffs Continue

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Economic activity in U.S. manufacturing contracted for the fifth straight month in July, according to a survey by the Institute for Supply Management (ISM), as survey respondents indicated tariffs continue to hamper their operations.

The ISM's Purchasing Manager's Index (PMI), which tracks 18 manufacturing sectors in the U.S., registered 48% in July, down from 49% in June, 48.5% in May--which was the lowest reading since November 2024--48.7% in April and 49% in March. February and January each saw readings over 50%. Any reading under 50% indicates contraction in the manufacturing economy.

"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," Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said in a related summary of findings.

The Supplier Deliveries Index registered 49.3%, a decline of 4.9% from June. Anything above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases, according to the ISM.

Supplier Deliveries is one of the indexes used to determine inputs (along with inventories, prices and imports), which Spence said declined further into contraction territory in July. The index for prices increased 9.9% over the past six months, and in the last five months, the index reached its highest levels since June 2022.

"The Prices Index reading 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.

Meanwhile, the Employment Index, which dropped 1.6% from June's figure, is one of the indexes used to determine output. "For every comment on hiring, there were two on reducing head counts--a fairly wide ratio, historically speaking--reflecting companies' continuing focus on accelerating staff reductions due to uncertain near- to mid-term demand. Layoffs were the primary measure, an indication that staff shrinking continues to be urgent."

Although demand indicators, such as the index for new orders, improved month-over-month, the New Orders Index still contracted in July for the sixth consecutive month. July's reading of 47.1% was below the 12-month moving average (48.3%).

"Of the six largest manufacturing sectors, none reported increased new orders," Spence said. "Panelists noted continued weak demand, with a 1-to-1.4 ratio of positive comments to those expressing concern about near-term demand. Overall, new orders continue to slow amid tariff uncertainty; which party will pay tariff costs is still the prime issue in negotiations between buyers and sellers."

The ISM defines the six largest sectors as: machinery; chemical products; food, beverage & tobacco products; computer & electronic products; petroleum & coal products; and transportation equipment.

Survey respondents had much to say about how the tariffs were impacting operations. One from Machinery said uncertain tariff policies were slowing down the following: investment in new projects; component sourcing for new products; blanket orders; and replenishment of large inventory quantities. "Instead, we're working to shift suppliers to lower political risk countries or develop domestic sources. We are impacted by the higher tariffs on costs of raw materials and components both sourced domestically and from overseas, and we expect expenses will be higher in the third and fourth quarters as we consume the inventory."

Another from the Fabricated Metal Products sector said, "Sales softening more than usual during the summer. Negotiations with non-U.S. manufacturers are strained as we are reluctant to issue POs [purchase orders] for deliveries three or more months into the future with prices that include current tariffs."

However, one respondent from Chemical Products expressed positivity regarding a major, and booming, sector of U.S. manufacturing: data center construction was leading sales to "unprecedented growth." Chemical products are used in data center applications such as cable coating, fire suppression systems and preventing servers and other equipment from overheating (e.g. refrigerants and cooling agents.)

Industrial Info is tracking more than $400 billion in Industrial Manufacturing Industry projects under construction in the U.S., with the data center sector's $130 billion-plus worth of projects leading all manufacturing sectors in total investment value. Subscribers to Industrial Info's Global Market Intelligence (GMI) Industrial Manufacturing Project Database can click here for a list of data center projects and here for the full list of manufacturing projects.

For more information on U.S. data center construction, see August 1, 2025, article - EIA: ERCOT, PJM Regions Hotspots for Rapid Growth in Power Demand, July 17, 2025, article - Big Talk of AI, Power Development at Pennsylvania Summit, and July 14, 2025, article - Ohio Plots Path for Data Centers as Large-Scale Buildouts Loom.

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, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).