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Report On Business® Roundup: July Manufacturing PMI®

August 01, 2025
By Dan Zeiger

If the Manufacturing ISM® Report On Business® for July were personified, it would be a baseball player rushing to the middle of the diamond after the final out of the World Series, the last guy to land on top of the dogpile.

However, the blob of humanity in this scenario had very little to celebrate, a reflection of the parade of economic data on Friday morning: A disappointing federal jobs report with eye-catching revisions of previous months, a continuing decline in U.S. construction spending and consumer sentiment that nudged up in July but remains historically low.

When the Manufacturing PMI® for July registered 48 percent, a 1-percentage point decrease compared to the previous month and below expectations, that was the last player on the pile that — along with continuing trade and tariff developments — helped put markets “red across the board,” as Schwab Network host Diane King Hall put it.

In a conference call with reporters on Friday, Institute for Supply Management® (ISM®) CEO Thomas W. Derry, told a conference call of reporters that the trade deal between the U.S. and European Union, as well as tariffs set on products from more than 60 countries, should provide some clarity for companies.

“More stable and more predictable conditions in the future would be only a good thing for manufacturing,” Derry said. “We’re going to have to live with tariffs now, but we should to a large degree we understand where they’re going.” (Derry was filling in for Susan Spence, MBA, Chair of the ISM Manufacturing Business Survey Committee, who had a prior commitment.)

Such silver linings were sought amid continuing sluggishness in the PMI® data. One of the most disturbing revelations, Derry said, is that 79 percent of manufacturing gross domestic product (GDP) contracted in July, up from 46 percent the previous month. The share of GDP in strong contraction (a PMI® of 45 percent or lower) was 31 percent, up from 25 percent in June.

Critical demand measures like the New Orders (47.1 percent) and Backlog of Orders (46.8 percent) indexes improved but remained in contraction, and the Employment Index mirrored the federal data with a reading of 43.4 percent, a 1.6-percentage point decrease to its lowest level since June 2020 (42 percent).

The weak suite of economic data on Friday tempered enthusiasm at U.S. GDP growth of 3 percent in the second quarter and accelerated chatter that the U.S. Federal Reserve (Fed) should cut interest rates at its next meeting in September. This week, the Fed kept rates steady.

A loosening of monetary policy would raise manufacturing capital investment, Derry said. However, unlike markets, companies cannot make assumptions: “If I’m a manufacturer, especially at a smaller company, I’m going to wait until I see the rates actually cut before I make that call,” Derry said. “I’m not going to bet my company on an expectation of a rate cut. I would expect most manufacturing firms to wait until September to see how it plays out.”

Assumptions cannot be made on tariffs, either, especially with President Donald Trump threatening levies for reasons unrelated to trade or economic policy. When threatening tariffs on products from Brazil, Trump referenced legal proceedings involving former Brazilian president Jair Bolsonaro, who is charged with inciting a coup in 2023.

Derry is hopeful for stability, so “companies can make adjustments, and that would mean tariffs will have largely been solved,” he said. “If so, by the time we get out of 2025, we’ll be talking about other kinds of supply chain issues but not tariffs so much.”

In other PMI® data developments — especially if one is looking for positives:

  • The Production Index, which has displayed resiliency during the 2½-year manufacturing contraction, increased 1.1 percentage points in July to 51.4 percent, but that trend is unlikely to hold if new orders, backlogs and inventories stay in contraction. Derry posited that companies might simply be working their employees and lines harder.
  • The Customers’ Inventories Index declined further into “too low” territory, at 45.7 percent. At some point, those customers will have to reorder.
  • Despite tariffs indigestion, the Prices Index — while still historically high — signaled some relief in July, down 4.9 percentage points to 64.8 percent. Among panelists, 35.4 percent reported that their companies paid higher prices, a decrease from 45.6 percent in June.

 The Report On Business® roundup:

Barron’s: U.S. Manufacturing Activity Contracted for Fifth Straight Month in July. “Tariffs are tiring out American businesses and weighing on a persistently sluggish U.S. manufacturing industry. So far, investors have shrugged off most tariff news, likely believing things will get better eventually. Better hasn’t been reflected in the current PMI® data, however.”

Bloomberg: U.S. Manufacturing Contracts at Fastest Pace in Nine Months. “The ISM report showed a sixth straight month of contraction in new orders. Softer demand allowed delivery times to improve in July. (The Supplier Deliveries Index) fell below 50 percent for the first time since November. The index dropped nearly 5 points, the most since October 2022. Order backlogs and export demand also remained in contraction territory.”

CNBC: Consumer Sentiment 61.7 vs. 61.8 Estimated. “ISM, on the manufacturing side, the headline number comes in light at 48 percent; that means it’s the fifth consecutive number in contraction territory,” analyst Rick Santelli said. He added, “(The Employment Index) is kind of later after today’s (federal jobs) number. Employment comes in at 43.4 percent, so it was kind of correct. It was well below 45 percent (in June) and well below expectations.”

MarketWatch: U.S. Factory Sector Contracts for Fifth Straight Month in July, ISM Shows. “Manufacturing continues to struggle amid downbeat sentiment and elevated interest rates, economists said. More than two-thirds of manufacturers experienced contraction in their output in July, the highest level since December 2024. On the positive side, new orders are not falling as fast as they had in prior months and production has improved.”

Mace News: Manufacturing Falls Deeper into Contraction Amid Slow New Orders, Still Fragile Output, More Job Cuts, Elevated Costs. “A tentative trade deal with Japan was announced on July 23 and one with the EU came on July 27, which means most of the ISM survey respondents didn’t have time to digest the latest developments. Instead, they seemed to be looking at the chaos that the Trump tariffs had already caused.”

Reuters: U.S. Manufacturing Extends Slump; Factory Employment Lowest in Five Years. “Economists polled by Reuters had forecast the PMI® edging up to 49.5 percent. The weak PMI reading is consistent with economists' expectations for a slowdown in activity in the third quarter as the effects of the import duties become more apparent.”

The Wall Street Journal: U.S. Factory Activity Continues to Contract. “The contraction follows growth in the U.S. economy at a rate of 3 percent on quarter in the three months through June, according to government figures set out this week. Still, the steep trade tariffs that President Trump’s administration is applying to foreign imports could take a heavier toll in the months ahead.”

ISM’s Services PMI® will be unveiled on Tuesday, and the Hospital PMI® on August 7. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Yagmradam)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.