Health product manufacturers face continued cost pressure

TEMPE, Ariz. – U.S. manufacturing activity accelerated in July to its strongest level in more than four years, with production, new orders and employment all rising even as manufacturers continued to face elevated raw material costs and supply chain pressures.

The Institute for Supply Management’s Manufacturing PMI was 55.6% in July, up 2.3 percentage points from June and the highest since May 2022. Manufacturing has now expanded for seven consecutive months, while the overall U.S. economy has remained in expansion for 21 straight months.

“The Manufacturing PMI registered 55.6 percent in July, 2.3 percentage points above the June figure and the highest reading since May 2022 (55.9 percent),” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee.

Production provided one of the strongest signals in the report. The Production Index climbed 6.3 percentage points to 58.5%, its highest level since November 2021, and the New Orders Index rose to 56.7%. The Employment Index rose to 52.8%, returning to expansion for the first time in 33 months.

The stronger operating environment was accompanied by ongoing cost pressures that could have implications across the consumer health and retail supply chains. ISM’s Prices Index registered 71.1%, indicating raw material prices increased for the 22nd consecutive month. Manufacturers cited higher steel and aluminum prices, tariffs on imported goods, and increases in petroleum-based products related to the conflict in the Middle East as key drivers.

Supply availability remains an issue. Electrical and electronic components, integrated circuits, printed circuit boards, semiconductors, and several metals were among the commodities reported in short supply in July. Supplier deliveries slowed for the eighth consecutive month, and the Supplier Deliveries Index rose to 58.9%.

The report nevertheless points to continued demand. Customer inventories remained in “too low” territory at 40.7%, a level ISM said is generally considered positive for future production. Backlogs also increased, while new export orders returned to expansion.

Manufacturers remain cautious about the operating environment. ISM said 62% of respondents' comments in July were negative, with pricing volatility, geopolitical conflict, longer lead times, and tariffs among the most frequently cited concerns.