US ISM Manufacturing PMI Expands for 7th Straight Month in July but Lingering Iran War, Global AI Boom Causing Longer Supply Delivery Lead Times, Memory Chip Shortages

–ISM’s Spence: Sentiment Trending Up in Right Direction; Slower Deliveries Could Get Worse but Orders Still Flowing

By Max Sato

(MaceNews) – U.S. manufacturing activity expanded for the seventh straight month in July to the highest level in more than four years but the Mideast conflict and the global AI boom have made delivery times longer, computer chip shortages worse and prices more volatile, prompting some logistics managers to say the pandemic-triggered supply chain breakdowns were easier to cope with.

The purchasing managers index compiled by the Institute for Supply Management rose 2.3 percentage points to 55.6 to hit the highest level since 55.9 in May 2022 after slipping 0.7 point to 53.3 in June and rising 1.3 points to a four-year high of 54.0 in May. The index is up from 52.6 in January, when it jumped 4.7 points to indicate the manufacturing sector’s first expansion in 12 months.

“Of the five subindexes that make up the PMI, four grew faster compared to the previous month; the exception was the inventories index, which was down just 0.2 percentage point,” ISM Manufacturing Business Survey Committee Chair Susan Spence said in a statement. The employment index reading of 52.8 is up 3.1 points from 49.7 in June, putting the index in expansion territory for the first time in 33 months, she noted.

In July, 38% of the comments were positive (up from 34% in June and 25% in May) and 62% were negative (down from 66% in June and 69% in May), which led to a 1-to-1.6 ratio of positive to negative sentiment, improving from 1-to-1.9 in June and 1-to-2.7 in May, according to the ISM.

Among the negative comments, pricing volatility was mentioned in 57% of them, up from 50% in June to match May’s 57%, followed by the Iran war at 43% (vs. 31% in June and 42% in May). New in the list is increasing lead times (slower deliveries) 22%. The share of the high U.S. tariffs levied on imports has been relatively low at 18% in July, 17% in June and 18% previously. The shares don’t add up to 100% as some firms mentioned multiple factors in the survey.

Looking at the bright side of the report, Spence told reporters, “The general sentiment, the demand sentiment and the hiring sentiment is all trending in the right direction towards positivity.”

The new orders index has posted growth for seven months in a row and the production index for nine months, which together helped lift the employment index back into positive territory, she said.

Asked about extended lead times in supply deliveries, Spence replied that the situation “could get worse” given the shortages of memory chips that are in high demand for building artificial intelligence data centers around the world and longer transportation times needed to bypass the Strait of Hormuz and the Red Sea as the U.S.-Iran conflict lingers.

“My big concern would be if it creates order flow stoppage,” she said but added that currently orders are “flowing,” which is “underpinning” the overall sentiment improvement.

Spence noted that comments on interest rates have been absent from the ISM’s survey for months even though U.S. policymakers appear to be concerned about elevated inflation and rising bond yields, which could make borrowing costs higher.

“My gut says if business is finally expanding for these sectors and things are settling down because tariffs are known, perhaps less of an issue,” she said.

The widespread use of artificial intelligence has supported the electronics industry but as capital investment in AI data centers is gobbling up memory chips, causing shortages for producers of automobiles and consumer electronics.

“We continue to operate in a favorable demand environment driven by growth in the semiconductor, AI, advanced packaging, and high-performance computing markets, a firm in the computer and electronic products category told the ISM.

A machinery maker also said now that products going into data centers are at full procurement and manufacturing ramp-up, “demand for our semiconductor end products and connectivity (power, networking and photonics) is booming.”

But a transport equipment producer said, “Competing for scare supply — electronics, certain critical minerals and other categories — is challenging on-time fulfillment for our supply chains. This is expected to get worse with co-dependent sectors also remaining strong and restocking challenges for automotive electronics.”

The on-and-off ceasefire between Washinton and Tehran has led to high volatility in the prices for energy and commodities since the Iran war broke out in late February and the outlook remains uncertain. This has made daily dealings in supply management even more complicated as firms are trying to mitigate the drag from the erratic nature of President Trump’s decision-making on the trade front.

“No normalcy in sight in the world of metals,” an official from a primary metals producer told the ISM. “It makes me yearn for the coronavirus pandemic chaos, which was more manageable than whatever this is that we are in.”

An official from the electrical equipment, appliances and components industry agreed: “The pricing volatility and lead-time extensions in this market are arguably worse than the pandemic era. During COVID-19, we saw a surge of price hikes and inventory buy-ups, which caused constraints that eventually leveled out.”

The five sub-indexes that make up for the PMI (the previous month’s figures in parentheses):

New orders 56.7 (56.0) +0.7; in expansion for the seventh straight month. It rose a combined 3.3 points in April and May to recover some of its loss incurred in the previous two months totaling 4.6 points. The index recorded a 9.7-point jump in January to 57.1, the highest since 59.7 in February 2022.

Production 58.5 (52.2) +6.3; in expansion for the ninth month in a row. The index hit the highest since 60.5 in November 2021. It has been fluctuating month to month after rising 5.2 points in January 2026 to 55.9, the highest since 58.1 in February 2022.

Employment 52.8 (49.7) +3.1. The index is in expansion territory for the first time in 33 months. July’s 52.8 is the highest since 54.2 in August 2022. The panelist comment ratio of hiring to managing versus reducing head counts was 1.5 to 1 in July, improving from 1.8 to 1 in June and 1-to-2 at the beginning of 2026.

Supplier deliveries 58.9 (57.4) +1.5. Delivery performance of suppliers to manufacturing organizations was slower in July for the eighth consecutive month. The index stood at 60.6 in both April and May this year, which is the highest since 65.7 in May 2022 (above 50 means slower deliveries).

Inventories 51.2 (51.4) -0.2. It follows a 1.5-poing rise to 51.4 in June, when the index marked its first expansion in 14 months and reached the highest since 52.7 in March 2025.

Among other sub-indexes:

Customers’ inventories 40.7 (42.3) -1.6; May’s 42.7 is the highest since 43.3 in December 2025. The index dipped 4.6 points to 38.7 in January 2026, hitting the lowest since 35.2 in June 2022.

Prices 71.1 (73.0) -1.9. It follows June’s 9.1-point plunge, the largest drop since 18.5 points in July 2022. The index remains elevated after rising 6.3 points to 84.67 in April to reach the highest since 87.1 in May 2022. It indicates raw materials prices increased for the 22nd straight month.