Manufacturing Contraction in July: PMI Falls Below 50 for First Time Since December, Contrary to Expectations

Manufacturing surveys in the US have shown a contraction in July, with the S&P Global US Manufacturing PMI falling to 49.8 and the ISM US Manufacturing PMI dropping to 48.0, its weakest since October 2024. The Employment component confirms this week's payrolls weakness, but New Orders remain in contraction. Despite this, fears of inflation are falling, and there are signs that price pressures may have peaked in June.

U.S. manufacturing activity contracted in July, with the S&P Global U.S. Manufacturing PMI falling to 49.8 [1] and the ISM US Manufacturing PMI dropping to 48.0, its weakest since October 2024 [3]. The latest readings suggest a continuation of the sector's downturn, which has been exacerbated by concerns over tariffs, reduced demand, and higher input costs.

According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, "July saw the first deterioration of manufacturing operating conditions since last December as tariff worries continued to dominate the business environment" [1]. The S&P Global PMI indicates that new orders and stock holdings of both raw materials and finished goods decreased in July, following a period of inventory accumulation due to tariff-related concerns.

The ISM US Manufacturing PMI also reflects this trend, with the New Orders Index contracting for the sixth consecutive month [3]. While production grew, employment declined, indicating that manufacturers are trimming headcounts due to rising costs and lower sales. The Employment component of the ISM PMI aligns with this week's payrolls weakness, further supporting the notion of a struggling manufacturing sector.

Despite the contraction, fears of inflation are easing, with signs that price pressures may have peaked in June. Input prices continued to rise at a steep rate in July, but the rate of increase slowed compared to previous months. This suggests that the inflationary impact of tariffs may be lessening, providing some relief to manufacturers.

The S&P Global Brazil Manufacturing PMI also indicated a downturn in July, falling to 48.2 [2]. This further highlights the global trend of manufacturing weakness, with new orders decreasing solidly and export orders declining amid weaker client interest from key markets.

Overall, the manufacturing surveys indicate a challenging environment for U.S. manufacturers, with contraction in new orders, employment, and exports. However, there are signs that price pressures may be easing, which could provide some respite. Investors and financial professionals should closely monitor these indicators for further insights into the sector's performance and potential recovery.

References:
[1] https://www.advisorperspectives.com/dshort/updates/2025/08/01/sp-global-manufacturing-pmi-july-2025?topic=real-estate
[2] https://tradingeconomics.com/brazil/manufacturing-pmi
[3] https://www.prnewswire.com/news-releases/manufacturing-pmi-at-48-july-2025-manufacturing-ism-report-on-business-302519014.html