–ISM’s Spence Sees Positive Sentiment in Employment Start to Deteriorate in August
–Spence: Prolonged Trade Uncertainty Can Delay Orders, Increase Price Pressures
By Max Sato
(MaceNews) – U.S. manufacturing activity expanded for the eighth straight month in August but slowed more than expected as persistent inflation during the Iran war and additional punitive import duties slapped by the Trump administration dented new orders and job creation. Firms are also blaming the global AI boom for computer chip shortages and slower supplier deliveries.
The purchasing managers index compiled by the Institute for Supply Management fell a full percentage point to 54.6 after rising 2.3 points to a more than four-year high of 55.6 in July and dipping 0.7 point to 53.3 in June, data released Tuesday showed. The index is above the 52.6 level in January, when it jumped 4.7 points to indicate the manufacturing sector’s first expansion in 12 months.
“In August, U.S. manufacturing activity remained in expansion territory, though it has lost ground in a number of key measures – namely, the new orders, backlog and imports indexes,” ISM Manufacturing Business Survey Committee Chair Susan Spence said in a statement. “Of the five subindexes that make up the PMI, the only one that grew faster than last month was supplier deliveries (the only inverted index), indicating a continuing slowdown of the supply chain.”
Spence told a briefing that a 3.0-point drop in new orders and a 3.2-point decline in backlog orders together constitute “a warning sign” due to the uncertain outlook triggered by the lingering Mideast conflict and trade war. The status quo reminds her of the stagnant year of 2025, when uncertainties generated by stiff U.S. tariffs prompted manufacturing customers to sit on the sidelines in investment and purchases.
The positive sentiment in employment seen earlier this year “started to deteriorate in August,” she said, noting that the panelist comment ratio of hiring to managing versus reducing head counts stood at 1.3 to 1 in August, falling further from 1.5 to 1 in July and 1.8 to 1 in June. It was still better than 1 to 2 seen at the beginning of 2026.
“Because U.S. supply chains are so integrated, uncertainty around tariffs and the USMCA (U.S.-Mexico-Cananda trade agreement) can affect sourcing and costs in the three countries,” Spence told Mace News by email. “The report does not establish that trade policy alone is driving manufacturing conditions, but prolonged uncertainty can delay orders and increase price pressures.”
“Manufacturers will likely continue focusing on the factors they can control, such as inventories, costs and managing supplier relationships,” she said. “In this environment, companies are likely to remain cautious and use multiple suppliers in their tiers until policies become more predictable.”
In August, 42% of the comments were positive (up from 38% in July, 34% in June and 25% in May) and 58% negative (down from 62% in July, 66% in June and 69% in May), which led to a 1-to-1.4 ratio of positive to negative sentiment, improving from 1-to-1.6 in July, 1-to-1.9 in June and 1-to-2.7 in May, according to the ISM.
But Spence told reporters that some firms that made positive comments also pointed to negative factors in the latest survey. She also said different firms from the same industry provided different prospects, such as chemical producers, which are diverse. As seen in the previous report, the widespread use of artificial intelligence has supported the electronics industry but as capital investment in artificial intelligence data centers is gobbling up memory chips, causing shortages for producers of automobiles and consumer electronics.
A machinery producer told the ISM: “Photonics, high speed connectors, semiconductors and government orders are expanding significantly.” But the same company also said, “Supply chains domestically and globally are difficult, with increases in lead times and cost.”
A firm from the computer and electronic products category summarized the challenge: “Supply chain situation, especially in the electronics market, is going through another crisis even bigger and more complicated than during and post COVID-19. That’s mainly due to AI infrastructure and uncertainties in the global market (for oil and other critical supplies) due to war in the Middle East and more complication on trade rules.”
Among the negative comments, pricing volatility was mentioned in 57% of them in August, unchanged from 57% in July, and the Iran war 30%, down from 40%. By contrast, the share of increasing supply lead times rose to 46% from 22% and that of tariffs climbed to 29% from 18%. Most comments mentioned multiple factors so the numbers do not add up.
“The economy is annoying; it is getting in the way of otherwise good business,” a chemical producer said. “We are making great new products but struggling to compete when prices escalate due to things like tariffs and the conflict in the Strait of Hormuz. I fear that the inflation caused by these factors will lead to lower sales and lower spending power of our customers.”
The five sub-indexes that make up for the PMI (the previous month’s figures in parentheses):
New orders 53.7 (56.7) -3.0 point. The index shows expansion for the eighth straight month but the fall in August is the biggest since -3.1 at 45.6 in March 2025. Earlier, the index 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 58.3 (58.5) -0.2; in expansion for the 10th month in a row. In July the index surged 6.3 points to 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, which was the highest since 58.1 in February 2022.
Employment 51.2 (52.8) -1.6. The index is above the neutral line of 50 for the second straight month after popping into expansion territory for the first time in 33 months in the previous month. 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 stood at 1.3 to 1 in August, down from 1.8 to 1 in June. It was still better than 1 to 2 at the beginning of 2026.
Supplier deliveries 59.3 (58.9) +0.4. Delivery performance of suppliers to manufacturing organizations was slower in August for the ninth 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 50.6 (51.2) -0.6. The index posted a second straight drop. It follows a 1.5-point rise to 51.4 in June, when the index marked its first expansion in 14 months and reached the highest level since 52.7 in March 2025.
Among other sub-indexes:
Backlog orders 51.8 (55.0) -3.2. It follows a 4.5-point gain to 55.0 in July and a 1.7-point slip to 50.5 in June. In February, the index rose 5.0 points to 56.6, the highest since 58.7 in May 2022.
Prices 71.1 (71.1) 0. The index was unchanged after three months of decline and four months of increase. In July, it fell 1.9 points following June’s 9.1-point plunge to 73.0, the largest drop since 18.5 points in July 2022. The index remains elevated after rising 6.3 points to 84.6 in April 2026 to reach the highest since 87.1 in May 2022. It indicates raw materials prices increased for the 23rd straight month.