At 10:00 this morning, the Institute for Supply Management released its June manufacturing data and the headline was straightforward: the US Manufacturing PMI came in at 53.3 percent, a slight miss against the 53.9 percent consensus but the sixth consecutive month of expansion, equivalent to roughly 2 percent annualised GDP growth per ISM’s own historical regression. American factories are in their best sustained run since 2022. The detail beneath the headline is less comfortable. In 23 days, the tariff framework that helped produce this run expires, and what replaces it is not yet known.
The Section 122 surcharge, a 10 percent flat import tariff imposed on goods from virtually all countries, took effect on February 24, 2026 following the Supreme Court’s invalidation of the IEEPA tariff authority the same day. Section 122 of the Trade Act of 1974 permits the president to impose emergency tariffs of up to 15 percent for a maximum of 150 days unless Congress acts to extend the authority. The 150-day clock expires at midnight Eastern on July 24, 2026. The administration has not announced a permanent replacement. The Office of the United States Trade Representative has been conducting public hearings on proposed Section 301 country-specific tariff rates in the first weeks of July, with the objective of having new rates published before Section 122 lapses. Manufacturers have been operating, for five months, under a framework whose scheduled expiry they can see on the calendar and whose successor they cannot.
That tension is visible in the ISM data, and has been since March. In the June report, ISM Chair Susan Spence noted that the Prices Index registered 73 percent, still indicating raw materials price increases for the 21st consecutive month. The June reading represented the largest single-month decline in the Prices Index since July 2022, falling 9.1 percentage points from May’s 82.1 percent, driven in part by some easing in petroleum-based input costs as Brent crude has moderated below its March and April peaks. Steel and aluminium costs remain elevated on Section 232 tariffs, which were not affected by the SCOTUS ruling and are not expiring on July 24. Five of the six largest manufacturing industries reported price increases in June, per the ISM release.
What the Numbers Look Like in Sequence
The run of ISM data since the tariff transition in February tells a specific story. The PMI was 52.4 in February, then 52.7 in March and April, then 54.0 in May, the highest reading since May 2022. June came in at 53.3, a modest pullback but still within a narrow range that has held through six months. New orders in June registered 56 percent, down fractionally from May’s 56.8 but still signalling forward demand, though panelist sentiment shifted meaningfully compared to May: 34 percent of comments were positive and 66 percent negative, a 1-to-1.9 ratio, with the Iran war cited in 31 percent of negative comments and tariffs in 17 percent. Fifty percent of panelists mentioned pricing volatility as an issue, down from 57 percent in May but still reflecting a majority of the survey base flagging price instability as an active operational concern.
The one persistent weak spot is employment. The ISM Employment Index registered 49.7 percent in June, up 1.1 percentage points from May’s 48.6 percent but still in contraction territory for the sixth consecutive month. That combination, rising output with contracting headcount, is the signature of a productivity-driven expansion in which manufacturers are absorbing demand with existing capacity rather than hiring. Supplier Deliveries slowed for the seventh consecutive month, registering 57.4 percent, down 3.2 percentage points from May’s 60.6 percent, which reflects ongoing supply chain strain even as the pace of slowing has moderated. Business investment rose more than 10 percent in the first quarter of 2026, per the US Treasury’s statement to the Treasury Borrowing Advisory Committee, driven by equipment and intellectual property expenditure. The Trump administration attributes that investment acceleration to full expensing of equipment and research and development costs, reshoring incentives embedded in the tariff structure, and deregulation. The BEA’s final Q1 2026 GDP estimate, released on June 26, put annualised growth at 2.1 percent, above the 1.6 percent LSEG consensus, with information technology and professional services as the primary contributors and the AI capital expenditure cycle as the underlying engine.
Deloitte’s June economic forecast, published this week, projects real GDP growth of approximately 1.9 percent for both 2026 and 2027, with fixed business investment growth revised upward to 6.1 percent from a prior estimate of 4 percent on the back of AI-related capital spending. The firm also notes that much of the stimulative effect of the 2026 fiscal package has already been offset by the rise in energy costs, with the PCE price index having accelerated sharply since February before easing from its April peak but remaining well above the Federal Reserve’s 2 percent target heading into summer. For households, the combination of moderating but still elevated goods inflation, energy costs above pre-war levels, and Section 232 steel and aluminium tariffs embedded in the prices of manufactured goods they buy is why consumer sentiment has not caught up with the macro data. The University of Michigan’s five-year inflation expectations survey reached 3.9 percent in May, 0.6 percentage points above January, a signal that the pricing environment is becoming embedded in household expectations even as the headline rate edges lower.
The July 24 Transition and What It Actually Means
The replacement framework is being constructed in public, in real time, and in a compressed window. The USTR issued a Federal Register Notice in June outlining the administration’s post-Section 122 intentions: a 10 to 12.5 percent Section 301 tariff on all products from approximately 60 countries subject to a forced labour investigation, with an exemption list that broadly mirrors the Section 122 exclusions currently in effect. Brazil is subject to a separate 25 percent Section 301 proposal following the conclusion of the Brazil-specific investigation. Public comment closed on the proposals in mid-June. USTR hearings are running in early July. The timeline leaves manufacturers a narrow window of certainty, as noted by the National Tooling and Machining Association, which flagged the July transition as arriving during summer shutdowns with reduced staff.
The specific arithmetic matters for importers and for manufacturers dependent on imported components. A Chinese electronics manufacturer shipping to the US currently pays 10 percent Section 122 on top of 25 percent Section 301 plus applicable MFN rates. If Section 122 lapses without a Section 301 replacement, the Section 301 layer alone applies. If the new Section 301 rates are set at 25 percent for China-origin goods, the effective burden is broadly similar. For countries currently paying only the 10 percent Section 122 with no Section 301 exposure, July 25 is a meaningful inflection: Vietnam, Thailand, Cambodia, and Bangladesh face potential rates of 20 to 40 percent under the proposed Section 301 framework, substantially above the current 10 percent flat. That is the supply chain reorientation risk that does not appear in the ISM headline.
The Court of International Trade ruled on May 7 that Section 122 itself was unlawfully imposed, finding that the balance-of-payments conditions cited in the proclamation did not meet the statutory standard. The ruling applies only to the plaintiffs in that case, not universally, and the administration has appealed. For the majority of importers, the surcharge remains in effect pending appellate review. What that adds to the picture is a second layer of legal uncertainty running parallel to the policy transition: manufacturers who have paid Section 122 duties since February 24 may ultimately be entitled to refunds, but only if they have filed protests and the appeal process runs in their favour.
The Investment Paradox
The structural paradox in the current data is that the tariff framework has been simultaneously the driver of the manufacturing expansion and the source of the price pressure that complicates it. The reshoring incentive embedded in the tariff structure has pulled forward capital expenditure, producing the business investment acceleration that the Treasury cited and the Deloitte forecast reflects. That same tariff structure has kept the ISM Prices Index in expansion for 21 consecutive months, elevated supplier delivery times for seven consecutive months, and introduced the supply chain uncertainty that 17 percent of ISM panelists cited in June alongside the 31 percent who cited the Iran war.
When Section 122 transitions to Section 301 on July 25, the flat architecture changes to a country-specific one. The manufacturers who built supply chains under a 10 percent universal tariff will need to reassess costs against rates that differ by origin country. Those who reshored under the assumption of continued tariff protection will be operating in an environment shaped by a legal challenge that could unwind those tariffs retroactively. And those who planned investment cycles around the AI capital expenditure boom, which ISM’s data shows is sustaining new orders at 56 percent in June, will be doing so with a Fed that is, per Minneapolis Fed President Neel Kashkari speaking at the Aspen Ideas Festival in Colorado on June 26, pencilling in one more hike before year-end and rates on hold through 2027.
The gold market’s positioning near all-time highs reflects a similar read on the underlying conditions: a US economy growing at 2 percent with inflation at 3.4 percent, a manufacturing sector at four-year highs but facing a known tariff cliff, and a monetary policy stance that cannot ease into the uncertainty because the inflation numbers have not yet permitted it. The conditions are not recessionary. They are not comfortable. They are the conditions of an economy that has run hard on stimulus, tariff-driven investment incentives, and AI capital spending, and that faces a structural inflection point on July 24 that most of the headline data is not yet pricing. For the energy dimension of the manufacturing cost picture, Brent crude’s trajectory through July will determine how much of the June Prices Index relief holds into Q3.
The ISM’s Susan Spence noted in the June release that the 53.3 percent PMI corresponds historically to approximately 2 percent annualised GDP growth. The BEA’s Q1 final came in at 2.1 percent. The June ISM is consistent with that range. Whether the July 24 transition interrupts it is the question that no amount of June data can answer. The hearings are running. The clock is running. The manufacturers surveyed by ISM in June were operating under a tariff structure that has 23 days left.
