• Morgan Stanley raised its July ISM Manufacturing PMI forecast to 53.8 from 53.3, reflecting stronger Texas factory activity, rising production, and solid new orders.
  • The bank attributes longer delivery times and higher inventories to robust demand rather than supply chain disruptions, while price pressures eased despite higher energy costs.
  • The revision suggests resilient manufacturing demand and an improving inflation backdrop, supporting a soft-to-mid-cycle recovery narrative.

Morgan Stanley raised its July ISM Manufacturing PMI forecast to 53.8 from 53.3, citing stronger factory activity in Texas, rising production and solid new orders. The bank’s economists noted that longer delivery times and higher inventories point to stronger demand rather than supply chain disruptions, while price pressures eased even as energy costs climbed.

The upward revision comes amid a broader recovery in U.S. manufacturing, with recent regional surveys signaling expansion. “The data suggests demand is holding up well, which should support production levels in the coming months,” according to people familiar with the firm’s analysis. The forecast change aligns with a narrative of mid-cycle resilience, as manufacturers rebuild inventories to meet steady orders.

Price pressures have moderated slightly, though energy costs remain a wildcard. “We’re seeing input costs stabilize, but energy volatility could still push them higher,” said an economist not involved in the forecast. The ISM report, due early next month, may influence expectations for the Federal Reserve’s policy path, as sustained demand and easing inflation could support a cautious approach to rate cuts.

Market participants took the news in stride, with Treasury yields edging higher on growth optimism. The revision underscores a shift from earlier concerns over a sharp slowdown, though risks from geopolitical tensions and tighter financial conditions persist. Morgan Stanley’s updated forecast stands above the consensus, which had been hovering around 53.0, according to a Bloomberg survey.

*Clarification: The forecast revision is based on preliminary data and may be adjusted once the full ISM results are released.