American factory employment plunged in July to its lowest level since mid-2020, signaling a deepening industrial downturn within the nation’s manufacturing sector, a decline largely propelled by contracting demand and persistent uncertainty surrounding trade tariffs.
This significant drop in hiring was not an isolated incident but rather indicative of a broader deterioration across operational conditions, as evidenced by comprehensive industry surveys from both ISM and S&P Global. Both reports consistently highlighted a notable reduction in new orders and overall output, prompting factories to strategically scale back their inventory levels and manufacturing jobs.
Specifically, the ISM’s Purchasing Managers’ Index (PMI) slid 1.6 points to a concerning 43.4 percent in July, a figure that marks its lowest reading since June 2020. This metric falls significantly below the 50-point threshold that traditionally differentiates expansion from contraction, cementing the sixth consecutive month of job losses within the crucial manufacturing sector.
Susan Spence, chair of ISM’s manufacturing survey committee, underscored the severity of the situation, noting, “For every comment on hiring, there were two on reducing head counts—a fairly wide ratio, historically speaking—reflecting companies’ continuing focus on accelerating staff reductions due to uncertain near- to mid-term demand.” This sentiment reflects a pervasive caution among manufacturers regarding future demand.
The ISM’s headline manufacturing PMI registering 48.0 in July further solidified the trend of contraction, marking the fifth consecutive month of decline and the sharpest downturn observed since late 2024. Across all six of the largest manufacturing industries, new orders were reported as weaker, with no sector experiencing growth. Tariff uncertainty continues to play a pivotal role in these slowing orders, as negotiations between buyers and sellers struggle to determine who will bear the associated costs.
As domestic demand stagnated, the global trade landscape also presented challenges, with export orders declining for the first time in three months. Concurrently, business confidence plummeted to multi-month lows, forcing firms to implement dual strategies of inventory reduction and further workforce adjustments to navigate the challenging economic climate.
Despite the weakening demand, both manufacturing reports surprisingly indicated that factories continued to contend with significant inflationary pressures throughout July. The ISM report noted elevated input costs, albeit slightly lower than June’s figures, while S&P Global specifically pointed to high input prices driven largely by existing tariffs. These persistent cost burdens led manufacturers to raise their selling prices at nearly the fastest pace seen since November 2022, inadvertently adding more strain to an already slowing consumer demand.
Adding another layer to the economic narrative, Federal Reserve governor Michelle Bowman, who advocated for lower interest rates, suggested that U.S. firms might be prioritizing the reduction of profit margins over passing on higher tariff costs, primarily due to the prevailing weakness in demand. This industrial downturn is also echoed in broader job market trends, with the manufacturing sector shedding 11,000 manufacturing jobs in June, contributing to overall US economy job growth that significantly underperformed economists’ expectations.
The Bureau of Labor Statistics further highlighted the fragility of the job market by significantly revising May’s job growth figure downwards by 125,000, settling at a mere 19,000 new jobs. These recent monthly revisions were described as “larger than normal,” signaling a more pronounced cooling effect across the US economy than initially reported, underscoring the deep challenges faced by the industrial sector, as highlighted by key economic indicators.
