Manufacturing PMI Slips to 54.6 as New Orders Cool 3 Points

Why did manufacturing demand slow in August?

U.S. manufacturing expanded for the eighth consecutive month in August, but the Institute for Supply Management's Manufacturing PMI fell 1 point to 54.6, down from July's 55.6 reading (the highest since May 2022). New orders, a forward indicator of freight demand, dropped 3 points to 53.7. The backlog of orders index fell 3.2 points to 51.8, even as production remained elevated at 58.3. Any reading above 50 signals expansion; above 47.5 indicates the overall economy is growing. The August figure was consistent with annualized real GDP growth of 2.4%.

The slowdown in new orders may reflect companies pulling forward inventories ahead of tariff implementations earlier this summer. Demand sentiment around new orders turned less optimistic, with a 2-to-1 ratio of positive-to-negative comments compared to 3.5-to-1 in July.

Customers' inventories remained "too low" at 42.8, but the index rose 2.1 points sequentially. Manufacturing employment turned positive in July for the first time in 33 months and held at 51.2 in August.

What does slower supplier delivery mean for capacity?

Supplier deliveries to manufacturing facilities slowed for the ninth straight month. The ISM's supplier deliveries dataset, which measures delivery times, came in at 59.3, up 40 basis points from July. (This subindex is inverted: higher readings indicate slower deliveries and tighter supply chains.) Of the 14 manufacturing industries tracked, no industries reported faster deliveries in August compared to July.

Transportation capacity remained tight in August, according to the Logistics Managers' Index published the same day. That dataset showed a 40 reading for the month, deep into contraction territory, but at a contraction rate 11.6 points slower than in July. The combination of slowing deliveries and tight capacity suggests persistent friction in the supply chain, even as manufacturing demand moderates.

How high are input prices running?

The prices index held at 71.1 in August, level with July, indicating raw materials prices increased for the 23rd consecutive month. Respondents reporting higher prices fell 4 points to 46.2%. Inflation was flagged as a key concern among respondents, and pricing volatility was the biggest issue cited in negative comments.

Overall respondent sentiment was 42% positive and 58% negative for the month. The sustained elevation in input prices compounds the margin pressure small fleets face when contract rates lag spot movement or when fuel surcharges fail to keep pace with diesel.

What this means for LTL and industrial freight

Public less-than-truckload carriers will report August tonnage trends in the coming days. The industrial economy typically accounts for roughly two-thirds of LTL revenue. An eighth month of manufacturing expansion supports continued freight demand in that segment, but the 3-point drop in new orders and the shift in sentiment suggest the pace of growth is cooling.

For small fleets running industrial lanes, the August data point to a market that remains above water but is no longer accelerating. New orders are still expanding, but at a slower rate. Production remains elevated, but backlogs are shrinking. Supplier deliveries are still slow, which keeps capacity tight, but the rate of slowing has eased slightly. The combination suggests steady demand rather than surging demand.

The persistent tightness in transportation capacity (the Logistics Managers' Index at 40) and the ninth consecutive month of slower supplier deliveries indicate that the supply side of the freight market has not caught up to demand. That dynamic has supported rejection rates holding at 13.5% into Labor Day, even as some long-haul freight shifts to rail.

Small fleets should watch the new orders index in coming months. A reading above 50 still signals expansion, but the 3-point drop from July to August and the shift in sentiment from 3.5-to-1 positive to 2-to-1 suggest manufacturers are pulling back on forward commitments. If new orders continue to cool, the lag to actual freight movement is typically 30 to 60 days. That would put any demand slowdown into October or November.

Input price inflation at 71.1 for a 23rd consecutive month means manufacturers are still paying more for raw materials, which eventually flows through to finished goods prices and, in some cases, to freight rates. But the 4-point drop in the share of respondents reporting higher prices (from 50.2% to 46.2%) suggests the rate of increase may be moderating. For carriers, that could mean less upward pressure on contract rates in the next bid cycle, even if spot rates remain elevated on tight lanes.

The August PMI reading of 54.6 is still well above the 47.5 threshold that signals overall economic growth. Manufacturing employment turned positive in July and held in August, which supports consumer spending and, indirectly, retail freight demand. But the cooling in new orders and the shift in sentiment are early signals that the industrial freight market may be entering a slower-growth phase rather than a contraction.