US factory activity grew in July at its fastest pace in more than four years, powered by the AI infrastructure buildout. The Institute for Supply Management’s factory gauge hit 55.6 percent, 2.3 points above the prior month, the best print since May 2022.
The Production Index surged 6.3 points to 58.5 percent, its highest level in nearly five years, while new orders expanded for a seventh straight month. Factories also reversed a long contraction in hiring: the Employment Index rose to 52.8 percent, back in expansion territory for the first time in 33 months, with 60 percent of panelists reporting they are adding staff.
Economists tie the acceleration directly to semiconductors and data centers. Business investment in AI categories, including software, data center construction and computer equipment, reached an annual pace of $1.5T in June, and data center construction alone hit a $68.3B annual rate, up $21.5B from a year earlier. Oxford Economics’ Michael Pearce estimates AI capital spending accounts for nearly a quarter of recent GDP growth.
Fifteen of 18 manufacturing industries grew in July, led by transportation equipment, machinery and computer and electronic products. Costs remain a drag: the Prices Index stayed high at 71.1 percent as tariffs, port congestion and Middle East shipping disruptions keep pushing up input prices, with panelists calling current volatility worse than the pandemic era.
