U.S. manufacturing expanded at its fastest pace in four years during July, according to the Institute for Supply Management's Manufacturing PMI. The index registered 55.6 for the month, up 2.3 percentage points from June and marking the strongest reading since May 2022. The result also came in 1.6 points above analysts' forecasts.

A PMI reading above 50 signals expansion in the manufacturing sector, while a figure below 50 indicates contraction. A sustained level above 47.5 is considered indicative of broader economic growth. July represented the seventh consecutive month of expansion in the dataset, a trajectory the report noted was consistent with real GDP growth of 2.8%. The expansion streak marks a reversal from much of 2023, when the index spent months in contraction territory as businesses worked through excess inventories accumulated during the pandemic-era supply disruptions.

New orders climbed for a seventh straight month, reaching 56.7 — an increase of 70 basis points over June. Demand sentiment also brightened, with the ratio of positive-to-negative comments on orders improving to 3.5-to-1, up from 2.7-to-1 in the prior month. Inventories were described as remaining "too low," while manufacturing employment moved into positive territory for the first time in 33 months.

Manufacturing Recovery Reflected in LTL Volumes

The manufacturing sector has an outsized influence on less-than-truckload (LTL) freight demand, with approximately two-thirds of LTL volumes tied to industrial output. Historically, shifts in ISM data tend to lead LTL tonnage by several months. The volume gains come as the broader trucking industry has been navigating a prolonged freight downturn that began in 2023, with excess capacity and rate pressure weighing on carrier earnings across both truckload and LTL segments.

Four publicly traded LTL carriers reported second-quarter results in the preceding week. On average, tonnage rose 2.6% year over year during the quarter, and preliminary July figures showed tonnage growth accelerating to 5.1% year over year. Tonnage for the group first turned positive in March. Average weight per shipment was 3% higher year over year in Q2, driven by truckload shipments migrating back into LTL networks and a freight mix increasingly weighted toward industrial goods.

Carrier management teams expressed growing optimism about July trends. ArcBest (NASDAQ: ARCB), which typically experiences a 4.6% tonnage decline from June to July, saw tonnage fall just 1% this year — a 360-basis-point outperformance. XPO (NYSE: XPO) reported 400 basis points of outperformance relative to seasonal norms, while Old Dominion Freight Line (NASDAQ: ODFL) posted sequential volume trends 250 basis points better than typical seasonality.

Saia (NASDAQ: SAIA) saw a slightly subseasonal sequential tonnage trend in July, though the carrier had implemented a 7.1% general rate increase on July 6, which created some short-term volume volatility.

XPO highlighted "a lot of positivity from customers," noting that twice as many now expect their businesses to accelerate in the second half of the year.

Supply Chain Tightening and Subindex Details

Transportation tightness was evident in the ISM's supplier deliveries subindex, which tracks the "delivery performance of suppliers to manufacturing organizations." The subindex rose to 58.9 — up 1.5 points from June — signaling slower deliveries and potential supply chain constraints for an eighth consecutive month. Across the 13 manufacturing industries tracked, "no industries reported that supplier deliveries were faster in July compared to June."

Customers' inventories were assessed as still too low at 40.7, down 1.6 points sequentially. The combination of low customer inventories and rising backlogs — which climbed 4.5 points to 55 — historically aligns with continued production momentum, as businesses need to replenish stock and clear unfilled orders. The employment subindex reached 52.8, a gain of 3.1 points, while production climbed 6.3 points to 58.5. Sixty percent of respondents reported that their companies are actively hiring, while the remainder described themselves as "managing head counts."

The manufacturing expansion has direct implications for freight capacity, delivery timelines, and logistics costs across the transportation sector.