US August ISM Manufacturing PMI Drops 1.0 Points... Price Pressures Persist Despite Weakening Demand

Cost Pressures Persist Due to Tariffs and Middle East Conflict
Manufacturing Sector Continues Expansion

The U.S. manufacturing sector continued to expand for the eighth consecutive month, but the upward momentum of key indicators such as new orders and employment slowed. In contrast, cost pressures for manufacturers remained high due to rising energy prices stemming from tariffs and conflicts in the Middle East.

According to the Institute for Supply Management (ISM) on September 1 (local time), the manufacturing Purchasing Managers' Index (PMI) for August was 54.6. Although this figure represents a 1.0-point decrease from 55.6 in July, it has remained above the expansion-contraction threshold of 50 for eight consecutive months.

While the August reading retreated somewhat from July, which had marked the highest level since May 2022, it is still among the highest levels in recent years. U.S. manufacturing has continued its expansionary phase since January this year, following ten months of contraction last year.

However, a closer look at the details shows that the momentum for growth within the manufacturing sector is weakening. The new orders index dropped by 3.0 points from 56.7 in July to 53.7 in August.

The production index edged down slightly from 58.5 to 58.3, and the employment index fell by 1.6 points from 52.8 to 51.2. The order backlog index also dropped by 3.2 points, from 55.0 to 51.8.

ISM evaluated, "While U.S. manufacturing activity remained in expansion territory, key indicators such as new orders, order backlogs, and imports lost strength."

A worker is stocking products at a supermarket located in New York. New York, USA - Photo by Yoonju Hwang

Meanwhile, cost pressure faced by manufacturers is showing little sign of easing. The raw material price index for August stood at 71.1, the same level as the previous month. Raw material prices have been on the rise for 23 consecutive months. Among surveyed firms, 46.2% responded that raw material prices had increased compared to the previous month, while only 4.0% reported a decrease.

ISM identified the main factors behind persistent high price pressure as rising prices for steel and aluminum, tariffs imposed on imports, and increases in petroleum product prices due to conflict in the Middle East. Out of a total of 18 manufacturing sectors, 15 reported increases in raw material prices, while none reported a decrease.

Corporate sentiment also showed marked uncertainty. According to the ISM survey, 42% of company opinions in August were positive, while 58% were negative. Of the negative responses, price volatility was cited by 57% as the top concern, followed by increased supply lead times at 46%, the war in Iran at 30%, and tariffs at 29%. Some respondents mentioned multiple factors.

In particular, the computer and electronics industries indicated that supply chains are under simultaneous pressure due to increased demand for artificial intelligence (AI) infrastructure, the Middle East conflict, and uncertainty over trade policy.

ISM explained that, considering the historical relationship between the PMI and economic growth, the August PMI of 54.6 is consistent with U.S. real gross domestic product (GDP) growing at an annualized rate of approximately 2.4%.

According to Bloomberg, these indicators show that while the U.S. manufacturing sector remains in an expansionary phase, demand and employment momentum are weakening, while cost pressures from raw material and energy prices remain elevated.

This content was produced with the assistance of AI translation services.