U.S. manufacturing activity surged in July, reaching its highest level in over four years, while corporate executives reported inflation worries worse than the pandemic era, signaling continued price hikes for working families. The Institute for Supply Manufacturing's July survey showed a 55.6 reading, the best since May 2022, indicating significant expansion. This growth outpaced Wall Street expectations of 54.0.
Who Profits from the Surge
Strong gains in new export orders, backlogs, and a 6.3-point spike in production drove this expansion. The employment gauge also hit its highest point since August 2022, marking the first expansion in 33 months. Goldman Sachs now tracks third-quarter economic growth at 2.4%, a rise from its initial 1.5% estimate for the second quarter. Jeffrey Roach, chief economist at LPL Financial, projected economic growth could reach 2.2% in the third quarter if trade improved and businesses restocked inventories. These figures point to substantial gains for manufacturing capital.
The Burden on Working Families
Beneath these figures, the prices index remained high at 71.1, indicating that nearly three-quarters of all respondents reported prices were still rising. This marks the 22nd consecutive month of upward price trends. A manager in the electrical equipment, appliances, and components industry stated that "pricing volatility and lead-time extensions in this market are arguably worse than the pandemic era." This manager added that during Covid-19, price hikes and inventory buy-ups eventually leveled out, but now, "We are seeing nothing but consistent upward trends for both pricing and lead times that show no signs of slowing down." An executive in the primary metals sector lamented, "No normalcy in sight in the world of metals. It makes me yearn for the coronavirus pandemic chaos, which was more manageable than whatever this is that we are in." These rising costs erode the purchasing power of working families whose wages often do not keep pace.
The State's Hand in the Market
This environment of corporate profit and consumer price hikes presents a challenge to the Federal Reserve. Several analysts believe it will strengthen the case for an interest rate increase soon. Federal Reserve official John Williams stated inflation is expected to ease, but the Fed will act if it does not. Fed Chairman Kevin Warsh and his colleagues could implement a hike as early as September, citing the solid economic picture and the seeming stability of the labor market. Last week, the Federal Open Market Committee voted to hold its key overnight interest rate in a range between 3.5%-3.75%, where it has remained all year. However, virtually all pricing gauges show inflation still well above the Fed’s 2% target. Troy Ludtka, senior U.S. economist at SMBC Nikko Securities Americas, noted that strong payroll growth in manufacturing and construction would "enable the Fed to continue its hawkish communication drift." Richard de Chazal, macro analyst at William Blair, wrote that companies' complaints about the pricing environment, coupled with the ISM report, should "help tilt the scales further toward tightening policy at the September FOMC meeting." This tightening policy, historically, serves to cool the economy by making borrowing more expensive, often leading to slower hiring and wage growth, thereby protecting accumulated capital from inflationary pressures.
The commentary from purchasing managers pointed to a highly volatile environment, citing events like the Iran war and tariffs as contributing factors. Around this time eleven months ago, officials expressed substantial worry over a flat hiring picture, leading to three consecutive rate cuts starting in September 2025. June inflation data showed a short pause in Middle East tensions drove down energy prices, and shelter costs continued to moderate, but this relief was temporary. The ongoing geopolitical conflicts, often driven by imperial interests, create market instability that corporations exploit through price adjustments, while the state's financial mechanisms then move to manage the resulting economic contradictions in favor of capital.