Key facts
- US manufacturing activity reached its highest level in over four years in July, with the ISM PMI rising to 55.6.
- Strong order growth and a rebound in factory employment contributed to the surge in US manufacturing.
- Supply chain strains and elevated input costs persist due to the Middle East conflict.
- UK manufacturing activity expanded for the ninth consecutive month but at its slowest pace in four months, with the PMI revised down to 51.9.
- The Federal Reserve maintained its benchmark interest rate, but inflation risks remain tilted to the upside.
U.S. manufacturing activity surged to its highest level in more than four years in July, with the Institute for Supply Management's (ISM) manufacturing Purchasing Managers' Index (PMI) increasing to 55.6 from 53.3 in June. This figure surpassed economists' forecasts of 54.0 and indicates robust growth in the sector, which accounts for approximately 9.4% of the U.S. economy. The expansion was fueled by strong growth in new orders, which rose to 56.7, and a rebound in factory employment to 52.8, the highest reading since August 2022. Businesses have been actively increasing orders to mitigate potential price hikes and shortages stemming from geopolitical tensions in the Middle East and the ongoing conflict with Iran. The artificial intelligence buildout is also providing a boost to the technology sector, partially offsetting the impact of import tariffs on manufacturing. Business inventories remain low, suggesting ample room for further expansion, following a four-year high in factory production growth in the second quarter. However, supply chain constraints are evident, with supplier deliveries slowing, which typically signals strong demand. Inflation at the factory gate remains elevated, with the index for prices paid for inputs at 71.1, though this is a slight decrease from 73.0 in June. This could be influenced by a retreat in oil prices in June, though prices have since risen due to the collapse of a truce in July. The Federal Reserve recently maintained its benchmark interest rate, though some members dissented. Inflation risks are considered to be on the upside due to the ongoing conflict.
In contrast, UK manufacturing activity expanded for the ninth consecutive month in July but at its slowest pace in four months. The S&P Global UK manufacturing PMI was revised down to 51.9 from a flash reading of 52.8, and down from 52.5 in June. This slowdown was attributed to a significant reduction in stocks of purchases, slower job growth, and a decrease in vendor lead times. The manufacturing output component, however, rose to 52.9 from 52.6. Input cost inflation in the UK eased to its lowest level since February, and employment levels stagnated. Geopolitical tensions in the Middle East, including the conflict with Iran and Houthi actions, have led to higher energy prices, potentially impacting manufacturing demand towards the end of July.