U.S. manufacturing activity expanded sharply in July on the back of surging AI infrastructure investment, with the Institute for Supply Management's Manufacturing Purchasing Managers' Index (PMI) jumping 2.3 percentage points to 55.6% from 53.3% in June. This marks the highest reading since May 2022 (55.9%) and historically corresponds to 2.8% annualized real GDP growth versus 2% signaled by June's print. The acceleration reflects a 21st consecutive month of economic expansion.
Driving the surge: AI capital spending has become the primary engine of domestic growth. Economists estimate AI capex alone now accounts for nearly a quarter of recent GDP growth, while a broader mix of AI hiring, data center construction, and stock market gains accounts for roughly one-third of overall economic expansion. The ISM Production Index surged 6.3 percentage points to 58.5%—the highest level in nearly five years. New orders expanded for a seventh consecutive month to 56.7%, and backlog orders jumped 4.5 points to 55%.
The strength is heavily concentrated in semiconductor and data center supply chains. Survey respondents cited booming demand in semiconductors, advanced packaging, high-performance computing, and power/networking equipment. Notably, the ISM Employment Index broke out of contraction for the first time in 33 months, with 60% of manufacturers reporting active hiring versus 66% managing headcounts at the start of 2026—a striking reversal driven by pressure to clear backlogs.