Here’s Why the US Manufacturing Surveys Are Diverging So Dramatically…

Update (1015ET): As we noted below, there was a significant divergence between the two manufacturing surveys for July… which is not that unusual, and also an odd divergence between falling inflation expectations and universally rising commodity prices.

Based on the responses to the ISM survey, we may have found the answer… and it’s a familiar one in this bifurcated economy…

• Green ones from AI, semiconductor, electronics and machinery firms report strong demand from AI data centers, chips and defense.

• Red ones from metals, transportation, chemicals and consumer-related sectors report weak demand, tariffs, higher costs, geopolitical risks and pricing chaos.

Simply put, the AI supply chain is booming; the rest is not.

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Despite the recent slide in ‘hard’ data, US Manufacturing remained positive in July,and depending on which survey you are watching, was either flat… or surging.

• S&P Global US July Manufacturing PMI flat at 53.9 vs 53.8 flash and 53.9 for June – three month lows

• ISM US July Manufacturing PMI jumped to 55.6 vs 53.9 exp and 53.8 for June – highest since May 2022

Under the hood, ISM’s Survey showed better than expected improvements across the board…

• Prices Paid 71.1, Exp. 71.0

• Employment 52.8, Exp. 50.0

• New Orders 56.7, Exp. 56.7

Inflation lower, orders and jobs higher…

But, S&P Global’s PMI survey suggested evidence of supply chain disruption was also prominent in the latest survey data, with manufacturers signaling one of the sharpest deteriorations in vendor performance over the past four years. This contributed to slower growth in both inventories and purchases of pre-production goods, which eased to three- and four-month lows respectively

However, “although the headline PMI held steady in July,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, warns that “beneath the survey we see some warning signs about the future growth trajectory.”

Production rose at a markedly slower rate in July, linked to a third month of weakened growth of new business, in turn reflecting reduced inventory building after the especially strong precautionary stock accumulation reported in the second quarter. Williamson cited  “further pressure came from increased supply chain delays, falling exports, and further pushback on high prices from customers.”

While input cost inflation moderated slightly, inflationary pressures remained elevated thanks principally to the combination of high energy prices and tariffs.

As a side note, ISM respondents saw inflation lower but almost every commodity higher in price?

In response, producers are either trying to raise selling prices to protect margins or boost productivity, hence July also saw another month of high factory gate price inflation and subdued job gains.

Williamson concludes rather ominously: “In this environment, business optimism about growth prospects slipped to the lowest since last October, underscoring the downside risks to the near-term outlook.”

So – once again – choose your own adventure… is US Manufacturing stalling out (S&P Global) or surging at its fastest in four years (ISM)?