U.S. Manufacturing Growth Gains Momentum in July ISM Survey

The strongest reading in more than four years points to expanding demand, faster production activity, and renewed hiring—but higher costs, longer lead times, and supply chain disruptions will test manufacturers’ ability to execute.

U.S. manufacturing growth gained momentum in July 2026 as purchasing and supply executives reported stronger new orders, faster production activity, and renewed hiring. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index rose to 55.6 percent, up from 53.3 percent in June, and above economists’ consensus forecast of 54 percent.

The July manufacturing PMI was its highest reading since May 2022, and it marked the seventh consecutive month of U.S. manufacturing expansion, following a ten-month period of contraction. Readings above 50 generally indicate that manufacturing activity is expanding, while readings below 50 generally indicate contraction.

The results are welcome news for American manufacturing and the broader U.S. industrial base. Stronger manufacturing demand, however, does not automatically produce stronger operating performance. As production schedules accelerate, manufacturers will need sufficient production capacity, skilled workers, reliable suppliers, and disciplined factory management to convert higher demand into finished products, improved margins, and long-term growth.

U.S. Manufacturing Growth Is Turning Demand into Production

The most encouraging part of the July report was the alignment among demand, production, and employment.

ISM’s New Orders Index reached 56.7 percent, marking its seventh consecutive month of expansion. The Production Index climbed sharply from 52.2 percent in June to 58.5 percent in July—its highest level since November 2021.

Twelve industries reported increased production during July, and no industry reported a decline. The remaining industries were unchanged. This indicates that the improvement in reported production activity extended across a significant portion of the manufacturing economy.

The Backlog of Orders Index also increased by 4.5 percentage points to 55 percent. Meanwhile, the Customers’ Inventories Index fell to 40.7 percent, remaining in territory that ISM characterizes as “too low.” Low customer inventories can support future manufacturing production because buyers have fewer finished goods available to meet continued demand.

Separate data from the U.S. Census Bureau showed that the seasonally adjusted value of new durable goods orders increased 0.3 percent in June to $334.8 billion. Excluding transportation equipment, orders grew 0.6 percent. Computer and electronic product orders increased 3.1 percent and had risen in nine of the previous ten months.

These durable goods figures are not adjusted for price changes, and they cover June rather than July. They do not independently confirm the July ISM results, but they provide additional evidence that manufacturing demand was strengthening before the beginning of the third quarter. U.S. Census Bureau

Together, these indicators suggest that underlying manufacturing demand is improving. However, some orders and inventory purchases may have been accelerated to avoid future price increases, tariffs, material shortages, and geopolitical disruptions.

Manufacturers should distinguish sustainable customer demand from short-term purchasing intended to reduce exposure to future supply and pricing risks.

Industrial Growth Extended Across Major Manufacturing Industries

The July expansion was broad. Fifteen of the 18 manufacturing industries covered by ISM reported growth.

Expanding industries included transportation equipment, machinery, computer and electronic products, primary metals, electrical equipment, fabricated metal products, plastics and rubber products, furniture, and miscellaneous manufacturing. Chemical products were the only industry reporting an overall contraction.

Four of the six largest manufacturing industries—transportation equipment, machinery, computer and electronic products, and food, beverage, and tobacco products—expanded during July. Three of those industries—machinery, transportation equipment, and computer and electronic products—also reported increased new manufacturing orders.

Continued aerospace and defense demand is likely contributing to activity across transportation equipment, machinery, electronics, and fabricated metals. However, the ISM data do not isolate aerospace and defense manufacturing from the broader industry categories included in the survey.

The artificial intelligence infrastructure buildout is also generating concentrated demand for semiconductors, electronic components, electrical equipment, and other data-center-related infrastructure. That demand is supporting industrial growth, but it is also increasing competition for electronics, energy equipment, critical minerals, and other constrained raw materials.

The Federal Reserve has cautioned that the economic effects of AI remain concentrated in particular industries and investment categories, rather than representing a broad-based transformation of productivity and employment. Manufacturers should not assume that AI-related capital investment will benefit every market, supplier, and product line equally. Federal Reserve

Leadership teams should evaluate where this demand directly affects their customers, production processes, and supply chains. They should also distinguish sustainable market expansion from temporary purchasing intended to avoid future price increases, tariffs, and material shortages.

Manufacturing PMI Growth Requires Context

The July manufacturing PMI is a strong economic signal, but it does not mean that every part of the industrial economy is expanding at the same rate.

The PMI is a diffusion index. It measures how broadly business conditions are improving or deteriorating among surveyed purchasing and supply executives. It does not directly measure the total physical volume of factory production.

A reading of 55.6 therefore indicates that expansion was widespread. It does not mean that U.S. manufacturing output increased by 5.6 percent.

The latest Federal Reserve data showed that measured manufacturing output was unchanged in June, although it rose at a 4.7 percent annualized rate during the second quarter. Official government production data for July had not yet been released when ISM published its survey. Federal Reserve Industrial Production Report

ISM also reported that industries representing approximately 20 percent of manufacturing gross domestic product contracted during July, up from 5 percent in June. None of that activity met ISM’s definition of a strong contraction, but the increase demonstrates that conditions remained uneven beneath the headline number.

A separate preliminary survey from S&P Global offered a more restrained view. Its July data indicated that U.S. manufacturing production and orders continued to grow, but at their slowest rates since March. S&P Global also found that manufacturing optimism had declined because of tariffs, global trade concerns, geopolitical uncertainty, and high costs. S&P Global

The two surveys use different methodologies and respondent groups, so they do not always move together. Their contrasting results do not negate U.S. manufacturing growth. Instead, they reinforce the need for industrial leaders to distinguish broad economic momentum from the specific conditions affecting their customers, suppliers, facilities, and finished products.

ISM’s Manufacturing Employment Index Returns to Growth

ISM’s Employment Index rose from 49.7 percent in June to 52.8 percent in July, entering expansion territory for the first time in 33 months.

Transportation equipment, computer and electronic products, and food, beverage, and tobacco products were among the largest industries reporting higher employment. According to ISM, 60 percent of survey panelists reported that their companies were hiring, while 40 percent remained focused on managing headcount.

The ISM Employment Index is a survey measure, and it should not be interpreted as an official count of manufacturing jobs. The Bureau of Labor Statistics had not yet released its July employment report when ISM published its findings. The index shows that more surveyed manufacturers reported expanding employment than reducing it, but it does not establish the total number of manufacturing jobs created during the month.

The change may nevertheless represent an important shift in manufacturer confidence. Companies generally hesitate to add permanent workers until they have greater visibility into manufacturing demand, production schedules, government policy, and future business conditions.

The durability of the improvement remains uncertain. The previous move into employment expansion, in September 2023, lasted only one month. S&P Global also characterized July’s manufacturing employment growth as modest, and found that high costs and trade uncertainty continued to restrain hiring.

Manufacturers should not treat higher headcount as a substitute for greater manufacturing productivity. Adding labor without improving training, scheduling, workflow, equipment utilization, and quality assurance can increase costs without producing a proportional improvement in output.

Companies best positioned for the expansion will combine selective hiring with workforce development, automation, digital tools, and continuous improvement. The objective should not simply be to employ more people. It should be to give employees the processes, data, equipment, and training needed to produce more safely, consistently, and efficiently.

Production Capacity Could Become the Next Constraint

Rapid increases in new manufacturing orders can expose operational weaknesses that remain hidden during slower periods. As production schedules accelerate, manufacturers may encounter constraints involving equipment availability, tooling, floor space, engineering support, skilled labor, supplier capacity, and working capital.

The simultaneous rise in the Production and Backlog of Orders indexes suggests that some manufacturers may be increasing output without fully keeping pace with incoming demand. That makes disciplined capacity planning and capacity analysis especially important.

Manufacturers need to understand demonstrated production capacity—not merely the theoretical capacity implied by installed equipment. Actual factory output depends on production time, cycle time, first-pass yield, equipment uptime, labor availability, preventive maintenance, quality performance, and material flow.

Before committing to major capital investment, leadership teams should determine whether existing assets can support higher production schedules through better planning, reduced downtime, improved changeovers, higher first-pass yield, and the elimination of production bottlenecks.

Where additional equipment, tooling, and factory space are necessary, the investment should be connected to validated long-term demand, realistic production schedules, and a clear understanding of the system constraint.

Companies that accept new work without conducting this analysis risk overloading their factories. The result can be missed delivery dates, higher overtime, excess work in process, quality issues, and deteriorating customer relationships precisely when market conditions should be creating value.

Supply Chain Disruptions and Input Costs Remain Major Risks

Although the headline manufacturing PMI was positive, the underlying supply chain and pricing data were considerably less reassuring.

ISM’s Supplier Deliveries Index rose to 58.9 percent, indicating that supplier deliveries slowed for an eighth consecutive month. Because Supplier Deliveries is inverted within the PMI calculation, slower deliveries can contribute to a higher headline index.

Longer delivery times often accompany a strengthening economy as manufacturing demand places additional pressure on suppliers. However, they can also reflect raw material shortages, constrained logistics, transportation delays, and geopolitical disruption.

The Prices Index registered 71.1 percent. Although that was lower than June and represented a third consecutive monthly decline, it continued to indicate widespread increases in manufacturing input costs.

The survey’s underlying sentiment was also more cautious than the headline number suggested. Only 38 percent of respondent comments were positive, while 62 percent were negative. Among the negative comments, 57 percent mentioned pricing volatility, 43 percent referenced the Iran war, 22 percent cited increasing lead times, and 18 percent raised tariff concerns. Institute for Supply Management

Manufacturers reported limited availability of aluminum, copper, electrical components, rare-earth components, integrated circuits, memory products, and semiconductors. Survey respondents also cited higher costs and longer transit times associated with rerouted shipments through the Red Sea, the Strait of Hormuz, and the Suez Canal.

Competition between traditional manufacturers and the AI infrastructure market for electronics and certain critical minerals was creating additional pressure on supply chains and on-time delivery performance. Reuters

These conditions can quickly erode margins if manufacturers fail to update purchasing strategies, monitor supplier performance, and incorporate changing material and transportation costs into customer agreements.

Supply Chain Resilience Must Be Built Before the Next Disruption

Low customer inventories and expanding order backlogs should support future factory production, but they also leave little room for supplier failure. A delayed component or scarce raw material can stop an entire production line, regardless of how much demand exists for the finished product.

Supply chain resilience must therefore move beyond periodic supplier reviews. Manufacturers need structured supplier capacity assessments, multi-tier supply chain mapping, and early-warning indicators tied to quality, delivery, financial performance, and geopolitical exposure.

Effective risk mitigation may also include diversifying suppliers, qualifying alternative materials, developing additional domestic sources, and establishing inventory management policies based on the operational consequences of a disruption.

Not every component requires additional safety stock or a second supplier. Companies should prioritize raw materials and components with limited sources, long replenishment times, lengthy customer qualification requirements, and significant consequences for production. This approach allows manufacturers to improve supply chain resilience without tying up unnecessary working capital.

Cloud-based manufacturing systems and reliable supply chain data can help companies identify shortages, schedule changes, quality issues, and supplier performance problems earlier. Technology alone will not eliminate supply chain risks, but accurate data and disciplined management can give leadership teams more time to respond.

U.S. Manufacturing Growth Rewards Operational Readiness

The July ISM survey provides real reasons for optimism. U.S. manufacturing growth continued for a seventh consecutive month, the survey’s Production Index accelerated, durable goods orders improved in June, and ISM’s Employment Index returned to expansion.

However, the same report showed that the operating environment remains volatile. Manufacturers continue to face higher input costs, scarce materials, longer lead times, and uneven conditions across industries. Demand may remain strong, but its source and durability will vary significantly by market.

Expansion creates its own operational challenges. Rising demand increases pressure on production capacity, supply chains, employees, and balance sheets. Organizations that lack operational discipline may experience growth as factory congestion rather than opportunity.

Industrial leaders should use this period to validate production capacity, identify bottlenecks, improve production efficiency, strengthen supplier relationships, and ensure that capital investment plans align with realistic customer demand. They should establish operating rhythms that provide early visibility into schedule performance, manufacturing productivity, quality issues, material availability, inventory management, and working capital.

The central question is no longer simply whether manufacturing demand exists. It is whether American manufacturing companies can execute against it.