Manufacturing contracts in August, for sixth consecutive month, reports ISM

Manufacturing output declined in August, for the sixth consecutive month, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The report’s benchmark reading, the PMI, came in at 48.7 (a reading of 50 or higher indicates growth), up 0.7% from July, contracting, at a slower rate, for the sixth consecutive month, with the overall economy growing, at a faster rate, for the 64^th consecutive month.

The August PMI was 0.1% below the 12-month average of 48.8, with January’s 50.9 and October’s 46.9 marking the respective high and low readings for that period.

ISM reported that seven manufacturing sectors saw growth in August, including: Textile Mills; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Miscellaneous Manufacturing; and Primary Metals. The 10 industries reporting contraction included: Paper Products; Wood Products; Plastics & Rubber Products; Transportation Equipment; Furniture & Related Products; Machinery; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Chemical Products; and Fabricated Metal Products.

Tariffs and the economy were again the main themes cited in ISM panelist comments.

“Orders across most product lines have decreased,” said a Chemical Products panelist. “Financial expectations for the rest of 2025 have been reduced. Too much uncertainty for us and our customers regarding tariffs and the U.S./global economy.”

And a Computer & Electronic Products panelist explained that tariffs continue to wreak havoc on planning and scheduling activities.

“New product development costs continue to increase as unexpected tariff increases are announced — for example, 50-percent duties on imports from India, and increases to all countries up from original 10 percent,” said the panelist. “Our materials/supplies are now rising in price, so our sell pricing is again being reviewed to ensure we keep a sustainable margin. Plans to bring production back into U.S. are impacted by higher material costs, making it more difficult to justify the return.”

In an interview with LM, Susan Spence, Chair of the ISM's Manufacturing Business Survey Committee, noted that the gains in New Orders were encouraged but blunted by the drop in Production.

“A few months ago, Production went into expansion territory but dropped back down, and New Orders going into expansion typically is good,” she said. “But comments from panelists are 89% negative, regarding tariffs. My educated feeling about New Orders is that Customers’ Inventories continue to be too low, with orders in a couple of industries flowing through. Perhaps next month, we will see Production follow suit, with a bit of a bump. There is nothing I see that indicates it is going to sustain.”

The reasons for that, she explained, is that Prices are still up, backlogs continue to contract faster, and New Export orders were up a little, with panelists seeing no relief in the uncertainty brought about by the tariffs.  

What’s more, the ISM report stated that 69% of manufacturing GDP contracted in August, below July’s 79% reading.

Looking out over the balance of 2025, Spence said it is likely that the PMI remains in the high-40s range.

“I think it is going to depend on the tariff certainty,” she said. “Then the question will be if price increases as a result as a result be a one-time thing, with companies taking the pain, or if prices will continue to ripple,” she said. “I don’t know what the answer is going to be. What will make manufacturing hum again? It starts with people wanting stuff. If consumer sentiment stays negative, coupled with people concerned about their jobs, that puts manufacturing in a not-great place for a long time. The single-biggest thing that can happen is to choose an economic policy, stick with it, and don’t continue to change it. I get the negotiating tool but pay attention to what is happening to your economy as a result.”