U.S. Manufacturing Growth Cools in August as New Orders, Hiring Pull Back

U.S. factory output expanded for an eighth straight month in August, but the pace of growth cooled as new orders and order backlogs pulled back from July's stronger readings, the Institute for Supply Management said Tuesday.

The ISM Manufacturing PMI registered 54.6% in August, down a full percentage point from July's 55.6%. Readings above 50% indicate expansion, so the sector remains in growth territory, but the deceleration was broad-based: new orders fell three points to 53.7%, the backlog-of-orders index dropped 3.2 points to 51.8%, and employment slipped 1.6 points to 51.2%. Production held up better, easing just 0.2 point to 58.3%.

Perhaps the most closely watched line in the report didn't move at all. The prices index, which tracks what factories pay for raw materials, was unchanged at 71.1% — a level that has sat well above the historical average for months and signals input-cost pressure has yet to ease meaningfully.

Orders Cool While Prices Stay Stubborn

Fifteen of eighteen manufacturing industries reported growth in August, ISM said, led by primary metals, computer and electronic products, machinery, and electrical equipment — categories closely tied to the ongoing buildout of AI data centers and grid infrastructure. Only two industries, wood products and chemical products, reported contraction.

The combination of slowing new orders and persistently elevated prices is the kind of mixed signal that tends to complicate rather than clarify the economic picture. New export orders ticked up slightly to 53.2%, but the imports index fell sharply, down 3.2 points to 52.5%, which some economists read as an early sign that companies front-loaded inventory earlier in the year and are now working through stock rather than placing fresh orders.

Susan Spence, chair of the ISM Manufacturing Business Survey Committee, summarized the shift plainly in the report: "Manufacturing PMI registered 54.6 percent in August, 1 percentage point below July's 55.6 percent figure." Under ISM's standard formula, a PMI reading at that level corresponds to roughly 2.4% annualized GDP growth if sustained across the broader economy — a marker the institute has used consistently to translate its diffusion index into real-economy terms.

Data Lands in a Crowded Week for the Fed

The report arrived at the start of a data-heavy stretch for markets. ADP's August private-payrolls report, July factory orders, and the Federal Reserve's Beige Book survey of regional economic conditions are all due later Tuesday, ahead of Friday's more closely watched government jobs report. Coming so soon after Fed Chair Kevin Warsh's hawkish tone at last week's Jackson Hole symposium rattled rate-cut expectations, an elevated prices index paired with softening demand gives policymakers little clean signal either way: strong enough to argue against near-term easing, soft enough to raise questions about how long the expansion can hold.

ISM, a Tempe, Arizona-based trade group whose monthly survey of purchasing managers has tracked manufacturing conditions since 1948, has now shown factory activity expanding for eight consecutive months after an earlier stretch of contraction readings. That streak, combined with July's stronger 55.6% print, had briefly stoked optimism that manufacturing was accelerating out of a multiyear slump tied to high borrowing costs and tariff-driven cost uncertainty.

The report landed in an already jittery week for markets, with equities under pressure from unrelated geopolitical headlines and bond yields elevated on rate-hike speculation; traders showed little distinct reaction to the PMI release itself. More notable to economists tracking input costs was the persistence of the prices index, essentially flat for two straight months at an elevated level — a reading that has historically coincided with periods when manufacturers have limited room to absorb further cost increases without eventually passing them on, keeping tariff policy and supply-chain costs squarely in focus heading into the fall.

Investors will get a fuller read on corporate demand later Tuesday and Wednesday, when Broadcom, Snowflake, Hewlett Packard Enterprise and other technology and industrial suppliers report quarterly results. Economists will be watching whether the softer new-orders and backlog figures in August prove to be a pause or the start of a more sustained slowdown as the sector heads into the fall.