U.S. manufacturing stayed in expansion for an eighth straight month in August, but growth slowed and fell short of market forecasts. Cost burdens tied to tariffs and the war with Iran remain high, leaving producers with cooling momentum and unrelenting price pressure.
The Institute for Supply Management said on the 1st that its manufacturing purchasing managers' index registered 54.6 in August. That was down 1.0 point from 55.6 in July and below the 55.3 forecast compiled by The Wall Street Journal. The index has now held above the 50 threshold separating expansion from contraction for eight consecutive months.
U.S. manufacturing fell as low as 47.9 last December before rebounding to 52.6 in January and staying in expansion since. The index peaked at 55.6 in July, but that upward momentum broke in August. ISM said the sector remains in expansion territory but that momentum is weakening in key measures including new orders, backlogs and imports.
The details point to a clear slowdown. The new orders index dropped 3.0 points to 53.7 from 56.7, while the production index edged down to 58.3 from 58.5. The employment index fell 1.6 points to 51.2 from 52.8. All three stayed above 50 and remained in expansion, but their rates of increase narrowed noticeably. The backlog of orders index also fell 3.2 points to 51.8 from 55.0.
Cost pressures, by contrast, have not budged. The prices index, which tracks raw material costs, held at 71.1, unchanged from the previous month and above the 70.5 market forecast. Raw material prices have now risen for 23 straight months. Among companies surveyed, 46.2% reported higher raw material costs than a month earlier, while only 4.0% reported declines.
ISM attributed the elevated prices index to rising steel and aluminum prices, tariffs on imports, and higher petroleum product prices stemming from the Middle East conflict. Fifteen of 18 manufacturing industries reported higher raw material prices, and not a single industry reported a decline.
Uncertainty runs deep in sentiment on the ground. Positive comments accounted for just 42% of company responses in August, while negative comments reached 58%. Price volatility was the most cited reason for negative responses at 57%, followed by longer supply lead times at 46%, the war with Iran at 30% and tariffs at 29%.
In the computer and electronic products industry in particular, companies said supply chain conditions are more difficult than during the COVID-19 period, as expanding demand for artificial intelligence infrastructure overlaps with the war with Iran and trade policy uncertainty. In the machinery industry, companies voiced concern that energy, steel and labor costs are all rising rapidly at the same time.
Even so, the broader growth trend in manufacturing held firm. Fifteen of 18 industries reported growth in August. Among the six largest manufacturing sectors, five continued to expand: transportation equipment, petroleum and coal products, computer and electronic products, machinery, and food, beverage and tobacco products. ISM said that based on the historical relationship between the PMI and real gross domestic product growth, an August reading of 54.6 corresponds to annualized growth of 2.4%.
The data show a dual picture: U.S. manufacturing is holding on to its expansion, but demand momentum is weakening while cost pressures remain formidable.
