The PMI, or Purchasing Managers' Index, is a monthly survey-based indicator of manufacturing activity published by the Institute for Supply Management (ISM); a reading above 50 means the factory sector is generally expanding and a reading below 50 means it is contracting [1]. It is calculated as an equally weighted composite of five diffusion indexes: New Orders, Production, Employment, Supplier Deliveries and Inventories [1]. As of the August 3, 2026 release, the ISM Manufacturing PMI for July 2026 was 55.6%, up 2.3 points from 53.3% in June, the seventh straight month of expansion and the highest reading since May 2022 [1][2].
What is the PMI and how is it calculated?
Each month ISM asks supply executives at manufacturing companies whether activity in several areas is higher, the same or lower than the month before. Each answer set becomes a diffusion index: the percentage reporting higher plus half the percentage reporting no change. If 40% say higher, 40% say the same and 20% say lower, the index is 40 plus 20, or 60. A reading of 50 means as many firms report improvement as report decline [1].
The headline Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories, most of them seasonally adjusted [1]. For July 2026 the five components were 56.7, 58.5, 52.8, 58.9 and 51.2; their average is 55.6, which matches the headline [1]. Two details matter. Supplier Deliveries is inverted: a higher number means slower deliveries, which usually signals strong demand, so it adds to the PMI. And ISM notes that a PMI above 47.5% over a period of time generally indicates an expansion of the overall economy, not just of factories, because manufacturing is more cyclical than services [1].
The July 2026 report in detail
| Index | July 2026 | June 2026 | Change | Direction |
|---|---|---|---|---|
| Manufacturing PMI | 55.6 | 53.3 | +2.3 | Growing |
| New Orders | 56.7 | 56.0 | +0.7 | Growing |
| Production | 58.5 | 52.2 | +6.3 | Growing |
| Employment | 52.8 | 49.7 | +3.1 | Growing |
| Supplier Deliveries | 58.9 | 57.4 | +1.5 | Slowing |
| Inventories | 51.2 | 51.4 | -0.2 | Growing |
| Customers' Inventories | 40.7 | 42.3 | -1.6 | Too low |
| Prices | 71.1 | 73.0 | -1.9 | Increasing |
| Backlog of Orders | 55.0 | 50.5 | +4.5 | Growing |
| New Export Orders | 53.0 | 48.5 | +4.5 | Growing |
| Imports | 55.7 | 52.9 | +2.8 | Growing |
Source: ISM Manufacturing PMI report for July 2026, released August 3, 2026 [1]. Fifteen of the industries ISM tracks reported growth in July, and only chemical products contracted [1]. ISM estimated that the July reading corresponds to a 2.8% annualized increase in real GDP and that the overall economy grew for the 21st straight month [1].
Why markets watch ISM manufacturing data
The ISM report is one of the first hard-to-fake readings on the economy each month. It arrives on the first business day, weeks before official production and GDP data, and it moves markets for four reasons:
- Timing: July's PMI was public on August 3, 2026. The Federal Reserve's industrial production index for the same month arrives roughly two weeks later. The June production index stood at 102.8, up 1.4% from 101.4 a year earlier, consistent with the PMI's expansion signal [3].
- Leading components: New Orders (56.7) and Backlog (55.0) point to future production; Customers' Inventories at 40.7 is considered too low, which ISM describes as positive for future production because customers must restock [1].
- Inflation signal: the Prices index at 71.1 shows a majority of purchasing managers still paying more for inputs, even though it fell from 73.0 in June and 82.1 in May [1][2]. Bond traders read this as a reason for the Fed to stay cautious.
- Turning points: the PMI has now been above 50 for seven consecutive months, and that run of expansion is a key argument for owning cyclical industrial and materials stocks [1].
The June report offers a reminder that single months are noisy. The PMI dipped from 54.0 in May to 53.3 in June as Production fell 2.1 points, before rebounding in July [2]. Analysts therefore track the three-month average and the spread between New Orders and Inventories, which was 5.5 points in July, a positive gap that usually precedes further production gains [1].
How investors use the PMI
Investors may consider the PMI in several ways:
- Sector rotation: a rising PMI historically favors cyclicals such as industrials, materials, semiconductors and transport over defensive sectors; a falling PMI does the reverse.
- Earnings expectations: the New Orders and Backlog indexes lead manufacturing revenue by one to two quarters, so a reading of 56.7 supports revenue growth into late 2026 [1].
- Rates and the dollar: strong PMI plus a Prices index above 70 argues for higher bond yields; weak PMI with falling prices argues for lower yields [1].
- Cross-checking official data: the PMI can be compared with the industrial production index, GDP and payrolls on DataPorium's economic metrics page, and release dates appear on the markets calendar [3].
The limits are real. The PMI measures breadth (how many firms improved), not magnitude, so a small improvement at many firms reads the same as a large one. It covers manufacturing, which is a modest share of U.S. output; ISM's separate services PMI covers the larger part of the economy. And it is a survey of sentiment about activity, which can swing with tariffs, supply disruptions and inventory cycles. Even so, the July 2026 combination of a 55.6 headline, rising employment and easing but still high prices describes an economy where private capital investment is doing the work of growth [1].
The ISM Manufacturing PMI rose to 55.6% in July 2026, its highest level since May 2022, and any reading above 50 signals that more factories are expanding than contracting.
Key takeaways
- The PMI is an equally weighted average of five diffusion indexes; 50 is the line between expansion and contraction [1].
- July 2026 PMI: 55.6%, up from 53.3%, the seventh month of growth and the highest since May 2022 [1][2].
- New Orders 56.7, Production 58.5 and Employment 52.8 all expanded; Prices stayed high at 71.1 [1].
- ISM says a PMI above 47.5% over time indicates overall economic expansion; July's level maps to about 2.8% real GDP growth [1].
- Markets use the PMI for sector rotation, earnings expectations and as an early read before official production data [3].
Frequently asked questions
What does PMI stand for and what does it measure?
PMI stands for Purchasing Managers' Index. It measures whether manufacturing activity is expanding or contracting based on a monthly survey of supply executives; readings above 50 indicate expansion [1].
What was the ISM Manufacturing PMI in July 2026?
It was 55.6%, up 2.3 points from 53.3% in June 2026, according to the ISM report released August 3, 2026 [1].
Is a PMI above 50 good for stocks?
Generally yes, especially for cyclical sectors, because it signals rising orders and production. But a very high Prices index, such as 71.1 in July 2026, can also push bond yields up, which weighs on valuations [1].
How is the PMI different from GDP?
The PMI is a monthly survey of the direction of manufacturing activity, released within days of month end. GDP is a quarterly dollar measure of all output, released with a lag of about a month after the quarter ends and then revised.
