Morgan Stanley Lifts July ISM Manufacturing Forecast to 53.8 on Strong Texas Data

Morgan Stanley has upgraded its forecast for the July ISM Manufacturing Purchasing Managers' Index (PMI), citing stronger-than-expected regional data as evidence of continued momentum in the U.S. industrial sector. In a note released Monday, the bank said it now anticipates the headline index will reach 53.8, a notable increase from the 53.3 reading recorded in June.

Texas Data Prompts Revision

The forecast revision was primarily driven by a robust manufacturing activity report from the Dallas Federal Reserve. According to Morgan Stanley, the Dallas Fed's ISM-equivalent index for Texas rose to 53.3 in July from 52.9 in the prior month.

The bank highlighted that the regional strength was broad-based, with gains in key sub-indices such as production and new orders. Employment in the sector also continued to expand during the month, according to the regional survey.

Demand Outweighs Price Concerns

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Morgan Stanley's analysis suggests underlying demand remains firm. The bank interpreted longer delivery times and an accumulation of inventories as positive indicators of stronger demand, rather than a return of supply chain constraints.

While the Texas survey showed that both input and output price measures slowed during July, the bank cautioned that the prices paid index may not have fully captured the impact of recent increases in energy prices.

What This Means for Markets

The ISM Manufacturing PMI is a closely watched indicator of economic health, with a reading above 50 signaling expansion in the manufacturing sector. A realized figure of 53.8 would represent a solid acceleration in industrial activity, potentially influencing market sentiment about the resilience of the U.S. economy and factoring into expectations for Federal Reserve policy.