ISM Manufacturing Jumps to 55.6, Highest Since 2022, as Rival Survey Holds Flat
The Institute for Supply Management’s Manufacturing PMI rose to 55.6 in July from 53.3 in June, the highest reading since 2022 and 1.6 points above the 54.0 the consensus had looked for.
The move of 2.3 points is the largest in the series since the recovery from the pandemic contraction. It is also, on our reading of the components, a narrower move than the headline suggests.
The headline is the simple average of five equally weighted sub-indexes, and on our calculation it reconciles exactly. The five July readings sum to 278.1, which divided by five is 55.62, rounding to 55.6. The five June readings sum to 266.7, which divided by five is 53.34, rounding to 53.3.
ISM Manufacturing PMI components, July against June. Contribution and share columns are our calculation, each component’s change divided by five.
| Component | July | June | Change | Contribution to headline | Share of the rise |
|---|---|---|---|---|---|
| Production | 58.5 | 52.2 | +6.3 | +1.26 | 55.3 percent |
| Employment | 52.8 | 49.7 | +3.1 | +0.62 | 27.2 percent |
| Supplier deliveries | 58.9 | 57.4 | +1.5 | +0.30 | 13.2 percent |
| New orders | 56.7 | 56.0 | +0.7 | +0.14 | 6.1 percent |
| Inventories | 51.2 | 51.4 | -0.2 | -0.04 | -1.8 percent |
| Headline | 55.6 | 53.3 | +2.3 | +2.28 | 100 percent |
On our calculation, production and employment together account for 82.5 percent of the increase. New orders, the component that carries information about demand rather than about output already being produced, contributed 0.14 of a point, or 6.1 percent of the move. This is a survey of factories catching up, not a survey of new demand arriving.
One objection to that reading deserves testing, because supplier deliveries enter the index with a rising number meaning slower deliveries. A jump driven by delivery delays can look like strength while describing congestion. On our calculation it does not apply here: excluding supplier deliveries entirely, the average of the remaining four components is 54.80 in July against 52.33 in June, an increase of 2.47 points, which is larger than the published 2.3. The strength survives the check.
The reading also sits awkwardly against the output data. ISM states the growth rate in real gross domestic product that its headline corresponds to on an annual basis; at 55.6 that implied rate is 2.8 percent. The economy actually grew at an annualised 1.5 percent in the second quarter. The survey is a diffusion index, measuring the breadth of improvement rather than its depth, and breadth can widen while the amounts involved stay small.
The rival survey did not move at all. The S&P Global US Manufacturing PMI printed at 53.9 in July, exactly where it stood in June, in a release published on 3 August covering survey responses collected between 9 and 28 July. June itself had fallen from 55.1 in May. On our calculation the two surveys are now 1.7 points apart.
The detail of the S&P Global release points the same way as the ISM component split rather than against it. It reports that production volumes rose at the weakest pace since March and that growth in new orders eased for a third consecutive month, and its chief business economist is quoted warning that a steady headline masks signs about the future growth path. Two surveys with different panels and different weightings are therefore disagreeing about the headline while agreeing about new orders.
The rate setting is unchanged either way. The Federal Reserve held its target range for the federal funds rate at 3.50 to 3.75 percent on 29 July, on a 9 to 3 vote, and the effective federal funds rate printed at 3.63 percent on 31 July. A single manufacturing survey, in a sector that is a minority of output, does not move that.
Why it matters: Manufacturing surveys are read as leading indicators, and a reading at a multi-year high will be reported as evidence that the industrial cycle has turned. The composition argues for holding that conclusion lightly. An index driven by production and hiring with almost no contribution from new orders describes factories working through a backlog. Backlogs are finite. The reading that would confirm a turn is new orders accelerating in a subsequent month, and neither survey shows that.
Looking ahead: The August ISM release, and specifically the new orders sub-index, is the test of whether July was a turn or a catch-up. The two surveys will also be watched for convergence.
Sources: Institute for Supply Management; S&P Global; Bureau of Economic Analysis; Federal Reserve.
