U.S. Manufacturing PMI Rises in August but Contraction Persists — Evening Brief – 09.02.25  

The U.S. manufacturing sector showed modest signs of stabilization in August, with the ISM Manufacturing PMI rising to 48.7 from July’s 48.0. While the gain suggests activity contracted at a slightly slower pace, the reading still fell short of the 49.0 consensus forecast and marked the sixth consecutive month of contraction. This comes after a brief two-month expansion earlier in 2025, which itself followed more than two years of persistent declines. 

The data keeps the Fed’s September cut on track, with markets increasingly confident in a gradual easing path. However, the divergence between stronger new orders and weaker production/employment points to a fragile recovery in manufacturing. Markets will look for confirmation from September’s PMI and incoming inflation data before pricing additional cuts beyond year-end.   

Susan Spence, chair of the ISM Manufacturing Business Survey Committee, noted that the modest uptick was largely driven by stronger new orders, which climbed to 51.4 from 47.1 in July. However, the improvement was offset by weaker production, which fell back into contraction at 47.8 compared to 51.4 previously. “Since production contracted at a rate nearly equal to the expansion in new orders, the Manufacturing PMI increase was nominal,” Spence explained. 

Other key components reflected mixed signals. Employment edged higher to 43.8 from 43.4, though it remained firmly in contractionary territory, while supplier deliveries improved to 51.3, up from 49.3, suggesting some easing in supply chain conditions. Prices paid dipped to 63.7, down slightly from July’s 64.8 and below the 65.1 consensus, signaling a modest easing of input cost pressures. 

Industry-level results showed a sharp divide. Seven manufacturing industries expanded in August, led by textile mills, apparel and leather products, nonmetallic minerals, food and beverages, petroleum and coal products, miscellaneous manufacturing, and primary metals. By contrast, a broad swath of key sectors — including paper, wood products, plastics and rubber, transportation equipment, furniture, machinery, electrical equipment, electronics, chemicals, and fabricated metals — reported continued contraction. 

With two of the four demand indicators — new orders and new export orders — moving into growth territory, the report suggests that demand is starting to recover, even as production, employment, and backlogs remain under pressure.