PMI Manufacturing Falls, Following Richmond Fed’s Index

July’s advance purchasing-manager numbers paint a tale of two economies. The S&P Global Flash U.S. Composite PMI jumped to 54.6—its best showing in seven months—thanks almost entirely to a roaring service sector that notched a 55.2 reading. Manufacturing, by contrast, slipped back into contraction territory at 49.5, a full three points below Wall Street’s consensus and the first negative print of 2025. With gold simultaneously spiking to an intraday high of $3,428 per ounce, markets appear divided over whether the recovery is gaining steam or simply overheating in different places.

S&P Global’s economists reckon the July survey corresponds to real GDP growing at a 2.3 percent annualized clip, quickening from the second quarter’s estimated 1.3 percent pace. Yet the expansion looks lopsided: factory orders declined for the first time this year and exports fell at their swiftest rate since April. Services, fortified by stronger domestic demand, filled the gap—while also pumping out the kind of price increases that give Fed chairs sleepless nights. Prices charged for goods and services posted their second-strongest monthly rise since late 2022, and service-sector inflation clocked its steepest reading in over a year.

Tariffs are doing much of the heavy lifting on the cost side. Nearly two-thirds of manufacturers reporting higher input costs pointed the finger at fresh import levies, and roughly 40 percent of service firms that raised prices said the same. Policy makers may have hoped that trade barriers would shield domestic producers; instead, they risk entrenching higher prices at the checkout line. Austrian-minded observers would argue that layering protectionism atop years of monetary expansion is a recipe for persistent inflation—and July’s PMI data offer little to counter that case.

Overall payrolls expanded for a fifth straight month, but factory jobs fell for the first time since April as shrinking order books and faster improvement in supplier delivery times trimmed the need for labor. Services, on the other hand, booked their biggest hiring spree since January, yet still saw backlogs climb to the highest level in more than two years. Tight labor combined with swelling queues is a textbook setup for further wage-and-price pressures—a dynamic that historically pushes investors toward hard assets.

For now, services are masking manufacturing’s stumbles, letting headline numbers sparkle. But with price pressures heating and confidence fading, the veneer of balance looks thin. Investors—and policy makers—ignore that divergence at their peril.