U.S. Manufacturing PMI at 55.6%... Expands for 7 Months and Employment Rebounds

[Mexico City = Shim Young-jae, Correspondent] The U.S. manufacturing sector has continued its expansion for the seventh consecutive month. Production and new orders have increased, and employment has returned to an expansion phase for the first time in 33 months. Demand for artificial intelligence (AI) infrastructure, semiconductors, and defense industries has driven this recovery, but tariffs, Middle Eastern conflicts, and raw material price volatility remain burdensome for businesses.

U.S. Manufacturing Expands for Seven Consecutive Months

According to the July Manufacturing Purchasing Managers' Index (PMI) released by the Institute for Supply Management (ISM) on the 3rd (local time), the index recorded 55.6%. This is a 2.3 percentage point increase from June's 53.3% and 1.6 percentage points higher than the market expectation of 54%. It is the highest level since May 2022, when it was 55.9%. A PMI above 50% indicates expansion in the manufacturing sector, while below 50% indicates contraction.

According to ISM, U.S. manufacturing has expanded for seven consecutive months after ending a ten-month contraction. The overall U.S. economy has also continued to grow for 21 months. ISM explains that if the manufacturing PMI remains above 47.5% for a certain period, it indicates expansion in the overall economy.

Applying the historical relationship between PMI and economic growth rates, ISM analyzed that the July index of 55.6% corresponds to a real GDP growth of 2.8%.

The new orders index rose to 56.7%, up 0.7 percentage points from the previous month's 56.0%. New orders have increased for seven consecutive months after four months of contraction.

The production index increased from 52.2% to 58.5%, a rise of 6.3 percentage points, the highest level since November 2021, when it was 60.5%. Production has increased for nine consecutive months.

Among the 18 sectors surveyed, 12 sectors, including textiles, primary metals, printing, non-metallic minerals, electrical equipment, transportation equipment, computers and electronics, and machinery, reported increased production. No sectors reported a decrease in production.

Sue Ann Spence, chair of the ISM Manufacturing Business Survey Committee, stated, "Manufacturing activity in the U.S. grew at the fastest pace in over four years in July," adding that "four of the five sub-indices that make up the PMI, excluding inventories, grew faster than the previous month."

Employment Expands for the First Time in 33 Months

The employment index rose from 49.7% in June to 52.8% in July, an increase of 3.1 percentage points. This marks the first time the employment index has entered an expansion phase in 33 months. It is also the highest level since August 2022, when it was 54.2%.

Among the responding companies in the ISM survey, 60% reported that they are hiring. The remaining 40% indicated they are managing or reducing their workforce. Employment increased in the transportation equipment, food and beverage, and computer and electronics sectors.

Of the 18 manufacturing sectors, six reported increased employment: printing and related support, other manufacturing, electrical equipment, transportation equipment, food and beverage, and computer and electronics.

Sectors that saw a decrease in employment included textiles, non-metallic minerals, fabricated metals, plastics and rubber, chemicals, and machinery. The remaining six sectors saw no change in employment.

Export orders also recovered. The new export orders index rose from 48.5% in June to 53.0% in July, an increase of 4.5 percentage points, the highest level since March 2022, when it was 53.2%. The import index rose from 52.9% to 55.7%, an increase of 2.8 percentage points, the highest since June 2021, when it was 61.0%.

The unfilled orders index rose from 50.5% to 55.0%, an increase of 4.5 percentage points. With new orders and production increasing, unfilled orders also rose.

The customer inventory index fell from 42.3% to 40.7%, a decrease of 1.6 percentage points. ISM explained that excessively low customer inventories could be a positive signal for future production.

The supplier deliveries index rose from 57.4% to 58.9%, an increase of 1.5 percentage points. A supplier deliveries index above 50% indicates that delivery speeds have slowed. Supplier deliveries have slowed for eight consecutive months.

Delays in delivery were observed in key sectors such as food and beverage, machinery, computers and electronics, and transportation equipment.

Strong Demand for AI, Semiconductors, and Defense

According to companies in the computer and electronics sector participating in the ISM survey, favorable demand conditions continue due to growth in the semiconductor, AI, advanced packaging, and high-performance computing markets. Related companies are expanding investments in production capacity, technology, and customer support capabilities, maintaining a positive business outlook for the future.

According to companies in the machinery sector, as global AI infrastructure approaches actual operational stages, procurement and production of data center-related products are increasing significantly. Demand for semiconductors, power, network, and optical connection equipment is surging, and defense orders are reaching all-time highs.

However, orders related to medical, industrial, and consumer goods have shown distinct weakness compared to the AI and defense sectors.

According to transportation equipment companies, aerospace and defense demand continues to grow based on order backlogs. However, shortages of electronic components and key minerals are making it difficult to meet delivery deadlines. Concerns have also been raised that supply chain pressures could increase due to the need to replenish automotive electronic component inventories.

In July, 15 sectors experienced growth. The sectors that expanded included printing and related support, apparel and leather, electrical equipment, primary metals, non-metallic minerals, transportation equipment, other manufacturing, textiles, machinery, computers and electronics, food and beverage, wood, plastics and rubber, furniture, and fabricated metals.

The only sector that contracted was chemicals.

Among the six sectors that make up a significant portion of U.S. manufacturing, four sectors—transportation equipment, machinery, computers and electronics, and food and beverage—expanded.

Price Pressures Persist... Raw Material Prices Rise for 22 Consecutive Months

The price index fell from 73.0% in June to 71.1% in July, a decrease of 1.9 percentage points. It has decreased for three consecutive months but remains at a high level. Raw material prices have risen for 22 consecutive months.

According to ISM, 50.2% of the surveyed companies reported that raw material prices increased in July, down 4.9 percentage points from June's 55.1%.

Price increases were driven by rising prices for steel and aluminum, tariffs on imports, and rising petroleum product prices due to Middle Eastern conflicts.

Items that saw price increases included aluminum, copper, electrical and electronic components, freight, fuel, integrated circuits, memory, maritime freight, printed circuit boards, semiconductors, and steel.

Items identified as in short supply included aluminum, copper, electrical and electronic components, integrated circuits, memory, printed circuit boards, rare earth components, semiconductors, and tungsten products.

According to companies in the electrical equipment sector, prices for printed circuit board assembly components rose by 5-25%, and substrate prices rose by 15-45%. The price increases and delivery extensions are more severe than during the COVID-19 pandemic, and this situation is deemed unsustainable.

Transportation equipment companies reported that businesses are taking measures to reduce tariff risks. Increased shipping reroutes due to conflicts in the Red Sea, the Strait of Hormuz, and the Suez Canal have raised costs and shipping times.

Among the opinions collected by ISM, 38% were positive, while 62% were negative. The ratio of positive to negative opinions was 1 to 1.6.

Among the negative opinions, 57% mentioned price volatility. The Iran conflict was mentioned in 43% of the negative opinions, delivery delays in 22%, and tariffs in 18%.

Sectors that account for 20% of manufacturing GDP were in a contraction phase in July. The share increased by 15 percentage points from 5% in June.

However, there were no sectors experiencing strong contraction with a comprehensive PMI below 45%. In June, 3% of manufacturing GDP was in a state of strong contraction.

The lead times for purchasing-related activities have also increased. The average lead time for capital expenditures is 172 days, one day longer than in June. The lead time for production materials is 87 days, an increase of three days, and for maintenance, repair, and operations supplies, it is 50 days, an increase of two days.

U.S. manufacturing has accelerated its recovery as production, orders, and employment improve simultaneously. However, businesses have identified tariffs, raw material prices, Middle Eastern conflicts, and supply chain delays as variables threatening the sustainability of economic expansion.

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