Today's Market Update For You

ISM Manufacturing Registered 54.6 in August — Its Eighth Consecutive Month of Expansion — as Q2 GDP Held at 1.5% With the PCE Price Index Revised Up to 5.3%, Producing a Factory Sector That Grows While the Headline Economy Slows and Prices Rise

The Institute for Supply Management's August manufacturing index registered 54.6 — down from July's 55.6 but marking the eighth consecutive month of expansion, the longest such streak since 2022 — against a consensus of 55.2 and a backdrop in which the New Orders subindex fell to 53.7 from 56.7, the Backlog of Orders dipped to 51.8 from 55.0, and the Prices Paid index held at 71.1 — the same elevated level as July — indicating that input cost pressure in the factory sector has not eased despite the headline PMI softening. The Production subindex remained at 58.3, just below July's 58.5, and the overall economy extended its expansion to a 22nd consecutive month.

The Q2 GDP second estimate, released last week, confirmed real growth of 1.5% annualized — unchanged from the advance estimate and down from 2.1% in Q1 — while containing two internal revisions that create the most analytically complex picture of the cycle. Consumer spending was revised up to 3.4% annualized, the strongest pace since Q3 2025; real final sales to private domestic purchasers — the cleanest measure of underlying demand — rose to 4.2%, up from the initial 3.9% and the strongest read in three years. At the same time, the PCE price index for Q2 was revised higher to 5.3% annualized, and the broader gross domestic purchases deflator came in at 5.8%. The configuration — accelerating private demand, decelerating headline GDP, rising prices — is exactly the data mixture that makes the Fed's dual mandate function most like a zero-sum game: the demand that is driving robust consumer and business spending is generating the price pressure the Fed is tasked with containing, through instruments that must reduce the demand causing both.

ISM + Q2 GDP — The Growth and Price Picture

ISM Manufacturing (August)

54.6

8th consecutive month in expansion; down from July's 55.6; prices still at 71.1

Q2 Real GDP (Second Est.)

1.5% (down from 2.1%)

Unchanged from advance; consumer spending revised to 3.4% — stronger underlying demand

Real Final Sales to Private Dom.

4.2%

Revised up from 3.9%; strongest in 3+ years — private demand robust despite slowing headline

Q2 PCE Price Index (Revised)

5.3% ann.

Revised up 0.2pp from advance; gross domestic purchases deflator at 5.8%

The Growth Paradox — What Each Metric Says About the Rate Decision

Signal Pointing to Hold	Signal Pointing to Hike

Headline GDP slowed to 1.5% — demand drag from imports and government contraction	Real final private sales 4.2% — core domestic demand is not slowing
ISM New Orders fell to 53.7 — growth still expanding but losing momentum	ISM Prices Paid at 71.1 — factory-level input costs still substantially elevated
NFP −23K in July; JOLTS quits at 1.9% — labor market cooling reducing wage pressure	PCE price index 5.3% annualized — inflation running at a pace that mandates attention
Q3 GDP tracking estimate around 1.5–2% — economy absorbing current rate level	Consumer spending revised to 3.4% — the demand the Fed is tasked with moderating is re-accelerating
The Q2 GDP revision tells two contradictory stories: the consumer is more robust than first thought, and so is the price index. Both cut in the same hawkish direction.

The headline GDP deceleration from 2.1% to 1.5% is mechanically explained by three components that do not reflect private sector weakness: a government spending contraction that subtracted from the total, an inventory drawdown, and an import surge that subtracts from GDP as denominated. Strip those components out and private domestic demand came in at a pace — 4.2% — that is inconsistent with inflation returning to 2% on any timeline the FOMC would find acceptable. An ISM Manufacturing Prices Paid reading of 71.1 for the second consecutive month, set against production growth of 58.3, means factory-sector output is expanding while input cost inflation remains well above any level consistent with sub-3% CPI. The September data calendar — NFP on Friday, CPI on the 11th — needs to deliver substantial cooling in both employment and prices to justify a hold; absent that, the growth and inflation data as they stand through Tuesday provide the hawks with a compelling case.

Sources: ISM · BEA · QZ · Advisor Perspectives · Trading Economics · IndexBox