US manufacturing PMI jumps to 55.6 as AI boom fuels demand

US manufacturing grew in July at its fastest pace in more than four years as an artificial-intelligence buildout lifted orders, though pandemic-era-style supply shortages and rising prices tempered the gains.

"The Manufacturing PMI registered 55.6 percent in July, 2.3 percentage points above the June figure and the highest reading since May 2022," Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said.

The Production Index jumped 6.3 points to 58.5 percent, the highest since November 2021, while the Employment Index rose 3.1 points to 52.8 percent, entering expansion for the first time in 33 months. New Orders climbed to 56.7 percent, and the Prices Index, though easing for a third straight month, stayed elevated at 71.1 percent.

ISM's historical relationship between the PMI and the broader economy puts July's reading at a 2.8 percent annualized gain in real gross domestic product, extending the overall economy's expansion to 21 months. Yet 62 percent of panelist comments were negative, with pricing volatility, the Iran war, longer lead times and tariffs the most-cited concerns.

The acceleration traces to a global buildout of artificial-intelligence infrastructure. Panelists in computer and electronic products described strong sales growth and continued investment in manufacturing capacity, while machinery makers said demand for semiconductors and data-center connectivity is booming. The AI wave has lifted contract manufacturers such as Celestica Inc., which last week raised its fiscal 2026 revenue forecast to $20.5 billion from $19 billion on the strength of cloud and AI demand.

AI Demand Meets Pandemic-Era Bottlenecks

The boom is colliding with supply constraints that echo the pandemic. Supplier deliveries slowed for an eighth straight month, with the index at 58.9 percent, and average lead times for production materials stretched to 87 days, up three days from June. Panelists reported shortages of aluminum, copper, semiconductors, printed circuit boards and rare-earth components, while steel and electronic components led commodities rising in price.

Prices Keep Rising Even as Growth Accelerates

Raw-material prices increased for a 22nd consecutive month, with the Prices Index at 71.1 percent. ISM attributed the pressure to steel and aluminum increases rippling through the value chain, tariffs on imported goods and higher petroleum-based product costs tied to the Middle East conflict. One electrical-equipment panelist called the pricing volatility and lead-time extensions "arguably worse than the pandemic era," citing 5 percent to 25 percent increases for printed circuit board assembly components.

The employment picture brightened as 60 percent of panelists reported hiring, though gains were uneven. Food, Beverage & Tobacco Products, Transportation Equipment and Computer & Electronic Products added workers, while Textile Mills, Machinery and Chemical Products cut head counts. Of the six largest manufacturing industries, four expanded in July, led by Transportation Equipment, Machinery, Computer & Electronic Products and Food, Beverage & Tobacco Products.

The data carry implications for the Federal Reserve as it weighs inflation against growth. The 12-month average PMI of 51.3 points to a sector that has swung from contraction to expansion since late 2025, when the index sat at 47.9 percent. With prices still climbing and supply chains stretched, the question for policymakers is whether AI-driven demand can absorb further cost increases without feeding broader inflation. ISM's next Manufacturing PMI report, covering August, is due Sept. 1.

This article is for informational purposes only and does not constitute investment advice.