ISM Manufacturing Index Unexpectedly Rises in August But Tariff Uncertainty Still Weighs

Manufacturing unexpectedly increased in August as almost all of the industries in the Institute for Supply Management’s purchasing managers’ index reported gains, even as uncertainty about reciprocal tariffs weighed on sentiment.

The PMI reached 61.3 compared with a reading of 58.1 in July, and against the consensus on Econoday for a decline to 57.7. The new orders index rose to 65.1 from 60.2 while production increased to 63.3 from 58.5 in July. Of the 18 industries, 16 reported growth.

“Comments from the panel reflect continued expanding business strength,” said Timothy Fiore, chair of the ISM’s manufacturing business survey committee. “Demand is still robust, but the nation’s employment resources and supply chains continue to struggle.”

The ISM’s employment index was up at 58.5 in August from 56.5 in July, the 23rd straight month for growth in the sector. But respondents to the survey said labor market issues are “a constraint to their production and their suppliers’ production capability,” Fiore said.

The prices gauge was down to 72.1 in August from 73.2 a month earlier, as raw materials prices increased for a 30th straight month. “Increases continue in various chemicals, corrugate and packaging products, freight, labor, electrical and electronic components, wheat and wheat products, products manufactured primarily from steel (hydraulic components), and paper products,” Fiore said.

Separately, the IHS Markit manufacturing PMI fell to 54.7 in August from 55.3 in July, and compared with the Econoday view for 54.5. Still, a reading above 50 indicates expansion.

“Exports remain the key source of weakness for producers, with foreign orders barely rising in August after two months of modest declines,” said Chris Williamson, chief business economist at IHS Markit. “Tariffs and trade wars were also commonly cited as factors behind companies building safety stocks of inputs to ensure supply or lock-in lower prices, exacerbating supply shortages and also driving prices even higher.”

The ISM survey also showed worries about tariffs weighing on businesses as the US wages trade disputes on multiple fronts around the world.

“Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations,” Fiore said. “Panelists are actively evaluating how to respond to these business changes, given the uncertainty.”