Yesterday, the dollar strengthened after news that U.S. manufacturing activity rose in July at the fastest pace in over four years. According to the official report from the Institute for Supply Management, the ISM Manufacturing PMI index reached 55.6 percent, jumping 2.3 percentage points from June's 53.3 and significantly exceeding the consensus forecast of around 54 percent. This is the highest value since May 2022. The sector has been expanding for the seventh consecutive month, and the entire economy has been growing for the 21st month in a row.

The growth was broad-based and encompassed almost all components of the report. The new orders index rose to 56.7 percent from 56.0 in June, expanding for the seventh month after four consecutive months of contraction. The production index rose an impressive 6.3 percentage points to 58.5 percent, the highest in nearly five years. The backlog of unfulfilled orders index increased to 55.0 percent from 50.5 percent in June.

The most significant structural signal from the report was the return of employment to growth territory. The employment index rose to 52.8 percent from 49.7 in June, crossing into positive territory for the first time in 33 months. This represents a significant turnaround after nearly three years of continuous job losses in the manufacturing sector, sharply contrasting with the weak labor market that has continued to concern the Federal Reserve.

The export sector also showed noticeable improvement. New export orders and imports both rose to multi-year highs, indicating a recovery in external demand for American products alongside domestic revival.

Price pressures remain at historically elevated levels, although they continue to ease gradually. The prices index decreased to 71.1 percent from 73.0 in June, marking the third consecutive decrease to a five-month low; however, the figure remains above the 70 mark for the sixth month in a row, reflecting ongoing pressures from steel, aluminum, tariffs, and petroleum products.

At the same time, manufacturers' sentiments remain mixed. Despite the strong numbers, comments in the report maintain a moderately negative tone, with a ratio of positive to negative feedback of about 1 to 1.6. Moreover, price volatility, according to the report, has for the first time surpassed the war in the Middle East as the main concern for manufacturers. This significant shift in the focus of worries shows that, even against a backdrop of easing geopolitical premiums, uncertainties surrounding tariffs and costs remain a more pressing issue for businesses than the conflict's direct consequences.

The contrast with an alternative indicator for the same month is indicative. Unlike the sharp spike in the ISM, the competing S&P Global index remained unchanged at 53.9 and warned that the headline figure "masks softer growth in production and sales," while sentiment fell to a nine-month low. This discrepancy between the two leading methodologies for measuring U.S. manufacturing activity underscores that interpreting the July surge requires caution rather than unqualified optimism.