ISM® PMI® Reports Roundup: August Manufacturing
Last month, this space detailed how the ISM® Manufacturing PMI® Report for July indicated the fastest-growing U.S. factory activity growth in four years while adding that there were multiple caveats and concerns.
That caution appeared to be confirmed with the Manufacturing PMI® data for August, in which the composite reading of 54.6 percent again signaled strong growth, but drops in demand gauges — while not blinking red sirens at this point — are worth watching.
Susan Spence, MBA, the Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, said on ISM’s LinkedIn Live broadcast on Tuesday, “I don’t think I’m paranoid to be worried” about some of the readings.
August ISM Manufacturing PMI down to 54.6 vs. 55.2 est. & 55.6 prior … new orders down to 53.7 vs. 56.7 prior; prices paid unchanged at 71.1 … employment down to 51.2 vs. 52.8 prior pic.twitter.com/ZwnfOvYV6Q
— Liz Ann Sonders (@LizAnnSonders) September 1, 2026
Of course, the ISM® PMI® Reports data does not occur in a vacuum. Even when the numbers suggest that the manufacturing or services sector is humming, such market forces as a continuing conflict in Iran and its impact on oil supply and prices, signals from the U.S. Federal Reserve that an interest-rate hike could be coming, and yet another trade and tariffs dust-up are looming factors.
Those dynamics can make the economy “annoying,” as a Business Survey Committee respondent in Chemical Products wrote. That panelist added, “We are making great new products but struggling to compete when prices escalate due to things like tariffs and the conflict in the Strait of Hormuz. I fear that the inflation caused by these factors will lead to lower sales and lower spending power of our customers. Call it inflation! At some point, it leads to an economic downturn or at least an economic pain for many consumers.”
In August, the concerning figures were a combined 9.4-percentage point decrease in the New Orders (53.7 percent), Backlog of Orders (51.8 percent) and Imports (52.5 percent) indexes. That’s still demand growth, but a notable slowing, especially with no change in inflation pressure — the Prices Index (71.1 percent) equaled its July reading.
“I’m starting to see warning signs,” Spence told a conference call of reporters earlier on Tuesday. “A less than 1-percent decrease (in a subindex reading) is not going to concern me, but 3 percent? (That sentiment) is probably based on what happened last year.”
While some significant index swings can be chalked up as a one-off, others might signal the beginning of a prolonged slump.
In February 2025, the New Orders Index fell from 53.3 percent to 48.7 percent, a 4.6-point drop. It fell another 3.1 points the following month and stayed in contraction for the rest of the year, save for one month. In April 2025, the New Export Orders Index dropped from 49.6 percent to 43.1 percent, staying in contraction for the rest of the year.
US manufacturing activity expanded for the 8th straight month in August according to ISM. A computer and electronics exec said the supply chain situation crisis is bigger and more complicated than during Covid due to AI infrastructure and war in the Middle East.
— Jason Brooks (@brookskcbsradio) September 1, 2026
“We still have increasing prices, but if the volatility is settling down, what else is going on to make this order flow drop?” Spence said. “That’s the question. Do I have an answer for that? Not really, except that the demand sentiment is softening. Are tariffs impacting customers? You can only speculate on the why at this point, but some of the drops are alarming, especially (the Employment Index), which was the last thing to rise.”
After contracting in 41 of the previous 42 months, the Employment Index expanded in July. It did so again in August with a reading of 51.2 percent, a decrease of 1.6 percentage points, and Spence noted that the positive panelist sentiment on hiring in recent months has started to deteriorate.
While the AI and data-center buildups have been a boon for manufacturing, commodities that go into facility construction are more expensive. Chemical Products — a bellwether industry, to say the least — contracted for a second straight month. And the continuing drama from the White House to the Middle East raises a half-empty glass on the manufacturing sector’s longest streak of growth in four years.
“Although we’re in the eighth month of an expansion trend, there have been significant drops in new orders, backlogs and imports,” Spence said. “The ongoing Iran war and the recent renewed tariff threats continue to be the biggest headwinds for the continued expansion of the manufacturing economy.”
The ISM® PMI® Reports roundup:
Barron’s: U.S. Manufacturing Growth Slowed in August. Supply Chain Issues Are Building. “Pricing volatility, the Iran war, increasing lead times, and tariffs were the most mentioned negative comments. The data center buildout is still at the heart of the recovery, but supply chain constraints are popping up. … It was another solid report, with supply chain problems a watch item for investors.”
Bloomberg: U.S. Factory Gauge Eases But Holds Close to Four-Year High. “The manufacturing sector has gained momentum so far in 2026, reversing a multiyear slump. Factories are benefiting from resilient consumer demand, solid business investment and government outlays on defense. But they’ve also had to navigate through a series of challenges, including renewed tariff threats, a war-driven spike in energy prices and supply-chain disruptions.”
FreightWaves: August’s Manufacturing PMI® Dips to 54.6%; Supply Chain Constraints Persist. “Inflation was flagged as a key concern among respondents, with the prices index (71.1 percent) remaining elevated, but level with July. … The ISM data set provides key macroeconomic indicators that directly impact logistics, procurement and capacity planning.”
The comments section in the August ISM Manufacturing PMI had several mentions of supply chain issues and inflation … one person even said “the economy is annoying…” pic.twitter.com/MVyfXnScyj
— Kevin Gordon (@KevRGordon) September 1, 2026
Manufacturing Dive: Manufacturing Growth Slows in August as Economic Concerns Loom. “Three of ISM’s four demand indicators — New Orders, Backlog of Orders and New Export Orders — were in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.”
MarketWatch: Manufacturers Are Getting Frustrated: ‘The Economy Is Annoying’. “(T)he ISM survey was conducted before the Trump administration slapped new 50-percent tariffs on Canadian goods, which was followed by reciprocal tariffs on U.S. goods by Canada. The impact of that change will likely show up in next month’s survey.”
Reuters: U.S. Manufacturing Activity Slows in August; Input Prices Still Elevated. “Some of the retreat last month could be the result of the fading boost from businesses front-loading orders to avoid higher prices and shortages stemming from the six-month U.S.-Israeli war with Iran. Manufacturing … remains supported by an AI buildout. A further lift is expected from replenishment of business inventories, which have declined for five straight quarters, the longest such stretch since the Great Recession.”
The ISM® Services PMI® Report will be unveiled on Thursday. For the most up-to-date content on the ISM® PMI® Reports, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/VM)