US Manufacturing Surges as Global Sector Struggles With Iran War

Global manufacturing activity diverged in July 2026, as the United States experienced its fastest expansion in over four years while other major economies struggled under the weight of a five-month war involving Iran. The conflict has nearly halted shipping through the Strait of Hormuz, driving up energy prices and creating significant economic volatility across Asia and Europe.

In the United States, the Institute for Supply Management reported a manufacturing gauge of 55.6, fueled by AI technology buildouts, government defense spending, and resilient consumer demand. For the first time since September 2023, US manufacturers increased headcount to meet surging production and export orders. Despite this growth, the sector faces headwinds from rising raw material costs and supply chain strains following the collapse of an interim peace deal between the US and Iran.

Conversely, manufacturing growth slowed in China and India, with India recording its slowest expansion in nearly five years. In the euro zone, the S&P Global Manufacturing PMI rose to 51.9, marking the fastest output expansion since March 2022. However, this growth was primarily driven by the completion of backlogged orders rather than new demand. While Germany saw initial third-quarter expansion, French activity contracted. Inflation in the euro zone rose to 2.9%, increasing the likelihood of a rate hike by the European Central Bank, while the US Federal Reserve maintained its benchmark rate at 3.50%-3.75%.