ISM Manufacturing PMI Hits 4-Year High, Inflation Pressure Exceeds Pandemic Levels
Alina Collins
The U.S. ISM manufacturing PMI rose to 55.6% in July — the highest since May 2022 — driven by an AI-infrastructure boom, but raw-material prices have climbed for 22 straight months; executives call inflation pressure "worse than COVID," and odds of a September Fed rate hike are rising.
How strong is manufacturing right now?
The PMI came in at 55.6%, beating the 54.0% consensus and up 2.3 points from June — seven consecutive months above the 50 expansion line.
This means → ISM estimates the reading maps to real GDP growth of roughly 2.8% annualized; the U.S. economy has now expanded for 21 straight months.
Of 18 manufacturing industries, 15 grew; only chemicals contracted — an unusually broad expansion.
What is driving this expansion?
The core engine is the AI infrastructure buildout: demand for semiconductors, advanced packaging, and high-performance computing is fueling strong sales and capacity expansion.
Machinery-sector firms report that global AI infrastructure has entered a full-scale launch phase, accelerating procurement and manufacturing of data-center products across the board.
In plain terms = this manufacturing upswing is not a traditional cyclical recovery — it is an AI investment wave pulling orders and capacity up at the same time.
What do the sub-indices signal?
New orders hit 56.7%, expanding for a seventh month; production surged to 58.5%, the highest in nearly four years.
The employment index rose to 52.8% — its first expansion in 33 months — with 60% of firms actively hiring.
Customer inventories fell to 40.7%, firmly in "too low" territory. This means → restocking demand is still ahead, supporting future production.
Supplier deliveries climbed to 58.9%, slowing for an eighth straight month — strong demand keeps squeezing supply chains.
Why are executives calling inflation "worse than the pandemic"?
The prices index eased for a third month to 71.1%, yet raw-material costs have risen for 22 consecutive months and remain elevated.
Three main drivers: rising steel and aluminum prices, tariffs on imported goods, and Middle East tensions pushing up oil-related product costs.
One raw-materials executive said: "There is nothing normal about metals — it makes me long for the chaos of COVID, which was easier to manage than what we're dealing with now."
In plain terms = the pandemic price shock eventually leveled off, but this time prices and lead times keep climbing with no sign of easing — firms feel the pressure is actually worse.
How likely is a September rate hike?
The CME FedWatch tool puts the probability of a hike at the Sept. 15-16 meeting at 64.5%; the Fed held rates at 3.50%–3.75% last week, but three committee members dissented in favor of a 25 bp increase.
LPL Financial chief economist Jeffrey Roach wrote that if trade drag fades and restocking accelerates, Q3 GDP growth could reach 2.2%, putting the Fed under pressure to hike in September.
SMBC Nikko economist Troy Ludtka noted that manufacturing and construction — the two most rate-sensitive sectors — are adding jobs briskly, giving the Fed room to sustain its hawkish tone.
What comes next?
Goldman Sachs raised its Q3 GDP tracking estimate to 2.4% after the report, up from Q2's preliminary 1.5%.
62% of surveyed firms' comments were negative: 57% cited price volatility, 43% flagged Middle East risks, 22% reported longer delivery times.
This means → whether price pressure eases materially before the September meeting is the key variable for the Fed's final call on a rate hike.
Content is for reference only, not financial advice.