US Manufacturing PMI falls below 50 as tariff uncertainty dampens demand

The US manufacturing sector faced its first contraction of the year in July, with the S&P Global US Manufacturing Purchasing Managers’ Index (PMI) slipping to 49.8, down sharply from 52.9 in June.

This marks the first sub-50 reading in seven months, signaling a marginal deterioration in overall operating conditions as demand stalled and tariff concerns continued to unsettle the industry.

The latest PMI survey, conducted between July 10-28, highlighted persistent challenges for manufacturers, including sluggish new order growth, falling export sales, and sustained input cost inflation, albeit with signs of price pressures easing from June’s recent highs.

The July data revealed a broad stagnation in new orders, with international sales declining for the first time in three months. Manufacturers cited ongoing uncertainty over federal trade policies and tariffs as a key factor behind client hesitancy, particularly among overseas customers. Reduced business with major trading partners such as China, the European Union, and Japan was noted.

“The downturn at the start of Q3 reflects the passing of a busy period of tariff-related inventory accumulation,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “Factories reported little change in inflows of new orders and reduced stock holdings of both raw materials and finished goods in July.”

Faced with weaker demand, manufacturers adopted cautious inventory management strategies, drawing down stocks of purchases and finished goods. Employment levels also edged lower—the first net reduction since April—as firms responded to rising costs and dwindling backlogs by limiting new hires. While production volumes still edged higher, growth was only marginal. Business confidence regarding future output also weakened, with firms expressing concerns about prolonged demand softness and the inflationary impact of tariffs.

Despite a sharp slowdown in input price inflation compared to June’s near three-year high, cost pressures remained historically steep. Suppliers continued to raise prices, often attributing increases to tariffs. Manufacturers passed these costs onto customers, resulting in the second-largest monthly rise in selling prices since November 2022. There were, however, glimmers of improvement on the supply chain front. Supplier delivery times shortened for the first time since September 2024, reflecting better stock availability and reduced vendor backlogs.

While some manufacturers remain cautiously optimistic about a recovery over the next 12 months, confidence levels dipped to a three-month low. The report suggests that unless trade policy uncertainties are resolved and global demand strengthens, the sector may continue to struggle in the near term.

“The combination of muted demand, elevated costs, and policy uncertainty is creating a challenging environment for US manufacturers,” Williamson concluded.