US Factory Activity Shrinks for Sixth Straight Month
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U.S. factory activity shrank in August for a sixth straight month, driven by a pullback in production that shows manufacturing remains bogged down by higher import duties.
The Institute for Supply Management’s manufacturing index came in at 48.7 last month, according to data released Sept. 2. While a slight improvement from 48 in July, details of the report were mixed and the gauge remained below the level of 50 that separates expansion and contraction.
The group’s index of factory output sank 3.6 points to 47.8, moving back into contraction territory for the first time in three months. The group’s measure of employment inched up, but remained at one of the weakest levels since the year of the pandemic. Select comments from survey participants were notably downbeat.
“We continue to have weak demand overall, still due to tariff uncertainty,” Susan Spence, chair of the ISM’s Manufacturing Business Survey Committee, said on a call with reporters. “Sixty-nine percent of manufacturing GDP is in contraction. It’s down slightly from July. We have 4% of those industries in a heavy contraction period, and that is also down, but it is still not good to have that much in contraction.”
At the same time, there were a few hopeful signs about the outlook. Orders expanded for the first time since the start of the year. The ISM gauge of new bookings jumped 4.3 points, the largest increase since the start of last year, to 51.4.
A measure of prices paid for raw materials declined to 63.7 — still elevated but the lowest since February. That follows a 4.9 point drop seen in last month’s report, suggesting that tariffs-induced price volatilities are subsiding.
The mixed report highlights the number of cross-currents facing the nation’s producers. While still experiencing higher costs as a result of hikes in import duties, manufacturers are still benefiting from solid business investment and resilient household demand.
Consumer Spending
Government data on Aug. 29 showed consumer spending rose in July at the fastest pace in four months, fueled by outlays for big-ticket goods such as autos.
The ISM survey showed 10 industries contracted last month, led by makers of paper products, wood, plastics and rubber, and transportation equipment. Seven industries expanded.
The ISM data also showed order backlogs shrank at a faster pace, helping explain the soft employment figure.
(Bloomberg)
Select ISM Industry Comments
“A 50-percent tariff on imports from Brazil, combined with the U.S. Department of Agriculture’s elimination of the specialty sugar quota, means certified organic cane sugar — and everything made with it — is about to get significantly more expensive.” — Food, Beverage & Tobacco Products
“Orders across most product lines have decreased. Financial expectations for the rest of 2025 have been reduced. Too much uncertainty for us and our customers regarding tariffs and the U.S./global economy.” — Chemical Products
“Our materials/supplies are now rising in price, so our sell pricing is again being reviewed to ensure we keep a sustainable margin. Plans to bring production back into U.S. are impacted by higher material costs, making it more difficult to justify the return.” — Computer & Electronic Products
“With new construction at a low level, our new sales are impacted. We are mainly now relying on replacement business. Cost of goods sold is higher due to tariff-impacted goods.” — Machinery
“Export demand is falling as customers do not accept tariff impacts, which likely will require some production transfers out of the U.S. Supplier deliveries remain consistent with ocean shipping costs dropping significantly. Tariff costs have biggest financial impact but also costs of copper and of steel products.” — Fabricated Metals
“There is absolutely no activity in the transportation equipment industry. This is 100% attributable to current tariff policy and the uncertainty it has created. We are also in stagflation: Prices are up due to material tariffs, but volume is way off.” — Transportation Equipment
“Very tentative domestic market, with home building and remodeling not very active at all. Inflation, among other factors, is starting to impact consumer buying power, leading to negative signs for our order files.” — Wood Products
“‘Made in the USA’ has become even more difficult due to tariffs on many components. Total price increases so far: 24 percent; that will only offset tariffs. No influence on margin percentage, which will actually drop. In two rounds of layoffs, we have let go of about 15% of our U.S. workforce.” — Electrical Equipment
Meanwhile, manufacturers are wrestling with supply chain disruptions related to the Trump administration’s uneven rollout of its trade policy. The ISM supplier delivery gauge showed delivery times lengthened last month. Also, the group’s import index indicated a faster pace of contraction.
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