In July, the ISM Manufacturing PMI in the United States reached a new high not seen in over four years! The employment index returned to the expansion zone, and the construction of AI infrastructure is driving sustained demand for semiconductors.

The U.S. manufacturing sector further improved in July, achieving its best performance in over four years. Data released by the Institute for Supply Management (ISM) on Friday indicated that the ISM Manufacturing PMI rose to 55.6% in July, an increase of 2.3 percentage points from June, marking the highest level since May 2022 and remaining in the expansion zone for the seventh consecutive month. ISM stated that a PMI consistently above 47.5% typically indicates overall economic growth, with July's data corresponding to an annualized GDP growth rate of approximately 2.8%, reflecting 21 consecutive months of expansion in the U.S. economy. From a sub-index perspective, manufacturing sentiment improved across the board. The New Orders Index rose to 56.7%, an increase of 0.7 percentage points from June and marking seven consecutive months of expansion; the Production Index surged to 58.5%, a jump of 6.3 percentage points from the previous month, the highest level since November 2021; the Employment Index climbed to 52.8%, up 3.1 percentage points from June, marking the first return to the expansion zone in 33 months, reflecting a renewed expansion in hiring among manufacturing companies. The survey showed that 60% of responding firms reported they were hiring, while only 40% focused on controlling headcount. At the same time, the Backlog of Orders Index increased from 50.5% to 55%, and the Supplier Deliveries Index rose to 58.9%, indicating a slowdown in supplier delivery speed for the eighth consecutive month, reflecting robust ongoing demand in manufacturing. The Inventory Index slightly declined to 51.2%, still signaling expansion, while the Customers' Inventory Index fell to 40.7%, remaining in the "too low" inventory range. ISM noted that persistently low customer inventories typically imply ongoing replenishment needs, supporting future production. Export demand also showed noticeable improvement. The New Export Orders Index returned to the expansion zone in July, rising to 53%, an increase of 4.5 percentage points from June, the highest level since March 2022; the Import Index rose to 55.7%, the highest since June 2021, indicating a continued rebound in demand for imported raw materials and components in manufacturing. In terms of prices, although the Price Index fell for the third consecutive month from 73% to 71.1%, it remains at a high level, indicating that raw material prices have risen for 22 consecutive months. ISM pointed out that rising steel and aluminum prices, tariffs on imported goods, and escalating oil-related product prices due to the situation in the Middle East are the three main factors driving up manufacturing costs. In July, 50.2% of firms reported rising procurement prices, a decrease from June but with evident price pressures remaining. Regarding industry performance, 15 out of 18 manufacturing sectors reported growth, with only the chemical sector experiencing contraction; among the six major manufacturing sectors, the transportation equipment, machinery, computer and electronics, and food, beverage, and tobacco sectors continued to expand. In terms of new orders, 12 sectors saw growth; similarly, 12 sectors posted increases in production, with no sectors experiencing declines in output. Notably, AI infrastructure development continues to be an important driver of growth in manufacturing. Companies in the computer and electronics sector reported sustained demand growth in semiconductors, artificial intelligence, advanced packaging, and high-performance computing markets, with strong sales, capacity expansion, and customer support investment bringing positive prospects for the industry. Meanwhile, firms in the machinery sector noted that with global AI infrastructure development entering a full-scale launch stage, procurement and production related to data center products are accelerating, leading to rapid growth in demand for semiconductor products used in data center power, networking, and optical communication connections. Orders in the defense sector also remain historically high, while demand for medical, industrial, and consumer electronics products is relatively weak. However, businesses remain somewhat cautious about the future operating environment. ISM reported that, among the firms surveyed in July, 38% had positive comments while 62% had negative comments. Among the negative feedback, 57% mentioned price fluctuations, 43% referenced the situation in the Middle East, 22% reported extended delivery times, and 18% focused on tariff issues. Many firms also expressed that the Middle East situation has led to a resurgence in transportation costs and energy prices, with Asian clients adjusting their procurement sources to evade tariffs, while some sectors worry that price increases and extended supply cycles have exceeded those seen during the pandemic, putting pressure on future demand. Additionally, ISM's procurement cycle data indicated that the average procurement cycle for capital expenditures was 172 days in July, an increase of one day from June; the procurement cycle for production raw materials extended to 87 days; and the procurement cycle for maintenance and operating supplies increased to 50 days, further reflecting persistent tensions within the supply chain.