The U.S. manufacturing sector expanded for the eighth consecutive month in August, but the pace of growth decelerated across several key measures, according to the Institute for Supply Management’s Manufacturing PMI Report released September 1. The headline Manufacturing PMI registered 54.6 percent, down 1 percentage point from July’s 55.6 percent. All five sub-indexes that compose the PMI remained in expansion territory, but the New Orders Index dropped 3 percentage points to 53.7 percent, the Backlog of Orders Index fell 3.2 points to 51.8 percent, and the Imports Index lost 3.2 points to 52.5 percent. The Prices Index held flat at 71.1 percent for the second consecutive month, marking 23 straight months of increasing raw materials costs. For business owners, the August report describes a manufacturing sector that is still growing but losing forward momentum as demand moderates and input costs remain elevated.
Key Takeaways
- The ISM Manufacturing PMI registered 54.6 percent in August, down 1 percentage point from July’s 55.6 percent; the overall economy has been in expansion for 22 consecutive months (PMI above 47.5 percent).
- The New Orders Index fell 3 percentage points to 53.7 percent; demand sentiment deteriorated to a 2-to-1 positive-to-negative comment ratio, down from 3.5-to-1 in July.
- The Prices Index held at 71.1 percent for the second straight month, with 46.2 percent of respondents reporting higher raw materials prices; steel, aluminum, tariffs, and petroleum-based products remain the primary cost drivers.
- The Supplier Deliveries Index rose 0.4 percentage points to 59.3 percent, indicating supply chain slowing for the ninth consecutive month, with electronic components in short supply for 18 straight months.
- The S&P Global U.S. Manufacturing PMI eased separately to 53.2 from 53.9 in July, undershooting expectations and posting output growth at its weakest since July 2025.
- Fifteen of 18 manufacturing industries reported growth; two contracted: Wood Products and Chemical Products.
Demand Indicators Are Cooling but Remain in Expansion
The most significant signal in the August report is the deceleration in demand. The New Orders Index at 53.7 percent is still above the 50-percent threshold that separates expansion from contraction, and it marks the eighth consecutive month of growth after four straight readings in contraction. But the 3-percentage-point decline from July’s 56.7 percent represents a meaningful loss of momentum. Of the six largest manufacturing industries, only three reported increased new orders in August: Computer and Electronic Products, Machinery, and Transportation Equipment.
The qualitative data reinforces the quantitative signal. ISM survey respondents shifted from a 3.5-to-1 ratio of positive to negative comments about demand in July to a 2-to-1 ratio in August. That deterioration in sentiment alongside the declining index reading suggests that the new orders slowdown is not a one-month statistical artifact but a reflection of shifting buyer behavior across the manufacturing base.
The Backlog of Orders Index fell 3.2 percentage points to 51.8 percent, its sharpest monthly decline in the current expansion cycle. A backlog reading above 50 percent means order queues are still growing, but the rate of accumulation has slowed considerably. For manufacturers that use backlog levels as a forward production indicator, the August reading signals softer production schedules ahead unless new orders reaccelerate.
The Customers’ Inventories Index registered 42.8 percent, up 2.1 percentage points from July’s 40.7 percent but still firmly in “too low” territory for the 23rd consecutive month. Customers whose inventories remain below desired levels represent potential future orders, providing a floor under demand even as the pace of new order growth moderates. ISM Chair Susan Spence noted that a “too low” reading on customer inventories “is usually considered positive for future production.”
Prices Hold at Elevated Levels as Input Cost Pressures Persist
The Prices Index at 71.1 percent repeated its July reading exactly, marking 23 consecutive months of increasing raw materials prices. The percentage of respondents reporting higher prices declined slightly, from 50.2 percent in July to 46.2 percent in August, but no manufacturing industries reported paying lower prices for raw materials during the month. The direction of price movement is uniform: up, across every sector.
ISM identified three primary cost drivers sustaining the elevated prices environment. Steel and aluminum prices continue to climb, driven by Section 232 tariffs that raise costs across the entire manufacturing value chain. Tariffs applied to a broader range of imported goods add a second layer of input cost pressure. Petroleum-based products, priced higher as a consequence of the energy market disruption, affect everything from plastics and resins to freight and logistics costs.
Survey respondents described the pricing environment in specific terms. A Primary Metals industry respondent noted that “steel prices continue to climb as supply diminishes, aluminum is rising after dropping, and there are many holes on the plate side.” A Transportation Equipment manufacturer cited “high steel and aluminum prices due to Section 232 tariffs” as a persistent challenge to profitability, compounded by countervailing and anti-dumping penalties. A Chemical Products respondent described concern that “inflation caused by these factors will lead to lower sales and lower spending power of our customers.”
The commodities in short supply list underscores the supply-side constraints that are preventing price moderation. Electronic components have been in short supply for 18 consecutive months. Electrical components have been short for 14 months. Memory components have been constrained for 8 months. Copper, printed circuit boards, and tungsten products are also listed. The AI infrastructure buildout is a recurring factor in respondent comments, with a Computer and Electronic Products manufacturer noting that supply chain conditions are “going through another crisis even bigger and more complicated than during and post COVID-19” driven in part by “AI infrastructure.”
Supply Chains Continue to Slow as Delivery Times Extend
The Supplier Deliveries Index rose 0.4 percentage points to 59.3 percent, indicating that supplier delivery performance slowed for the ninth consecutive month. The Supplier Deliveries Index operates inversely to the other PMI sub-indexes: a reading above 50 percent means deliveries are taking longer, which typically occurs as the economy expands and demand strains supplier capacity.
The persistence of the slowing trend, now entering its ninth month, points to structural supply chain constraints rather than temporary disruptions. Fourteen of 18 manufacturing industries reported slower deliveries in August. No industries reported that deliveries were faster than the prior month. The lead time data supports this reading: average commitment lead time for production materials stood at 84 days in August, down 3 days from July but still elevated relative to historical norms. Capital expenditure lead times averaged 171 days.
For small and mid-size manufacturers that lack the purchasing leverage of larger competitors, extended lead times translate directly into planning uncertainty and working capital pressure. Orders placed today for production materials carry a nearly three-month wait. Capital equipment purchases require commitments nearly six months in advance. These timelines constrain the ability of smaller manufacturers to respond quickly to demand shifts, whether up or down.
Production Remains Strong but Employment Growth Is Slowing
The Production Index registered 58.3 percent in August, down just 0.2 percentage points from July’s 58.5 percent, marking the 10th consecutive month of output expansion. Production remains the strongest of the five PMI sub-indexes, reflecting the manufacturing sector’s continued ability to convert order backlogs into output despite supply chain and cost pressures. Four of the six largest industries reported increased production: Petroleum and Coal Products, Transportation Equipment, Machinery, and Chemical Products.
The Employment Index tells a more cautious story. At 51.2 percent, employment is still expanding but lost 1.6 percentage points from July’s 52.8 percent. Only Transportation Equipment among the six largest industries reported higher employment levels in August. The panelist comment ratio on hiring versus managing or reducing headcounts narrowed to 1.3-to-1, down from 1.5-to-1 in July. Three industries reported employment contraction: Textile Mills, Food Beverage and Tobacco Products, and Chemical Products.
The combination of strong production and weakening employment growth suggests that manufacturers are running existing capacity harder rather than adding headcount. That approach is rational in an environment where demand indicators are sending mixed signals and input costs remain elevated: adding permanent labor is a fixed cost that becomes a liability if orders continue to decelerate, while pushing existing workers and equipment produces output without the commitment of new hires.
Respondent Sentiment Reveals an Industry Managing Multiple Pressures Simultaneously
The August survey produced a 1-to-1.4 ratio of positive to negative comments, with 42 percent of respondent commentary classified as positive and 58 percent as negative. Within the negative comments, pricing volatility was cited in 57 percent of responses, increasing lead times in 46 percent, the conflict in the Middle East in 30 percent, and tariffs in 29 percent. Most comments referenced multiple factors simultaneously.
A Miscellaneous Manufacturing respondent captured the compound nature of the challenge: “significant availability and price challenges in commodities heavily consumed by AI, great uncertainty over when the Iran conflict will end, and another round of shifting U.S. tariff policy.” A Machinery manufacturer noted that “prices continue to rise on all goods” and that “suppliers are noting that energy, steel and labor costs are increasing very quickly.” A Computer and Electronic Products respondent described an industry “going through another crisis even bigger and more complicated than during and post COVID-19” driven by AI demand and global supply uncertainty.
The sentiment data matters for business planning because it reveals what the index numbers alone cannot: manufacturers are managing concurrent headwinds from energy costs, tariff policy, supply chain delays, and AI-driven component shortages, all while trying to maintain margins and fulfill orders in a demand environment that is losing momentum. The ISM report’s correlation to GDP suggests the August reading corresponds to approximately 2.4 percent annualized real GDP growth, according to Spence, which remains positive but represents a step down from the pace implied by July’s stronger reading.
What the August Report Means for Business Planning
The August ISM data, combined with the separately released S&P Global U.S. Manufacturing PMI reading of 53.2 (down from 53.9 and below expectations), and the Chicago Business Barometer’s collapse to 47.1 from 57.6, paints a picture of a manufacturing sector that remains in expansion but is approaching a decision point. The national ISM index at 54.6 percent is comfortably above the 50-percent expansion threshold. But the direction of nearly every sub-index is downward, demand sentiment has deteriorated, and prices show no sign of easing.
For entrepreneurs and business operators who purchase manufactured goods, source components, or depend on manufacturing supply chains, three signals from the August report are worth tracking into September. First, the New Orders Index at 53.7 percent: if this continues to decline toward 50, it would signal that manufacturing demand is stalling, with downstream implications for production schedules, hiring, and capital investment. Second, the Prices Index at 71.1 percent: the plateau at elevated levels means input cost relief is not arriving, and businesses should plan for sustained margin pressure rather than expecting a near-term pullback. Third, supplier deliveries slowing for the ninth straight month: lead times remain extended, and companies that have not already adjusted procurement timelines and inventory buffers face fulfillment risk as the fourth quarter approaches.
The next ISM Manufacturing PMI Report, covering September 2026 data, is scheduled for release on October 1.
Disclaimer: This article is provided for informational and educational purposes only and does not constitute financial, investment, business, economic, or procurement advice. The economic data, industry indicators, market conditions, forecasts, and business implications discussed are based on information available at the time of publication and may change as new data becomes available. Statements regarding future manufacturing activity, input costs, supply chains, employment, demand, or economic conditions are projections and should not be treated as guarantees of future outcomes. Businesses should conduct their own research and consult appropriate professional advisers before making financial, operational, investment, or procurement decisions. The publisher does not guarantee the accuracy, completeness, or timeliness of the information presented.
FAQs
What Is the ISM Manufacturing PMI?
The ISM Manufacturing PMI is a monthly survey-based index published by the Institute for Supply Management that measures the health of the U.S. manufacturing sector. A reading above 50 percent indicates expansion; below 50 percent indicates contraction. A reading above 47.5 percent over time generally indicates expansion of the overall economy. The index is composed of five equally weighted sub-indexes: New Orders, Production, Employment, Supplier Deliveries, and Inventories.
What Did the August 2026 ISM Manufacturing PMI Show?
The August Manufacturing PMI registered 54.6 percent, down 1 percentage point from July’s 55.6 percent. The manufacturing sector expanded for the eighth consecutive month, but key measures including New Orders (53.7 percent, down 3 points), Backlog of Orders (51.8 percent, down 3.2 points), and Employment (51.2 percent, down 1.6 points) all decelerated. The Prices Index held flat at 71.1 percent for the second consecutive month.
Why Are Manufacturing Prices Still Rising?
The ISM Prices Index has been in “increasing” territory for 23 consecutive months. The primary drivers are steel and aluminum price increases amplified by Section 232 tariffs, broader tariffs on imported goods, and elevated petroleum-based product costs linked to the global energy disruption. No manufacturing industries reported paying lower prices for raw materials in August.
Which Manufacturing Industries Are Growing?
Fifteen of 18 manufacturing industries reported growth in August 2026. Five of the six largest industries expanded: Transportation Equipment, Petroleum and Coal Products, Computer and Electronic Products, Machinery, and Food Beverage and Tobacco Products. Two industries contracted: Wood Products and Chemical Products.
What Does the ISM Report Mean for Small Businesses?
For small businesses that purchase manufactured goods or rely on manufacturing supply chains, the August report signals continued input cost pressure with no near-term relief, extended procurement lead times (84 days average for production materials), and moderating demand that may slow order fulfillment timelines. Businesses should plan for sustained margin pressure and consider adjusting inventory buffers ahead of the fourth quarter.
