S&P warns US manufacturing expansion masks deepening supply, confidence slump

US manufacturing held its ground in July, but S&P Global says that’s the wrong way to read it. The latest S&P Global US Manufacturing PMI (pdf) came in at 53.9, unchanged from June, and still comfortably in expansion territory, yet the index provider calls it a picture that “masks softer production and sales growth.” Business confidence in the outlook fell to its lowest level since October 2025, marking a nine-month low.

The internals explain the gap between the headline and the mood. Production rose at its weakest pace since March, new order growth eased for a third straight month, and firms increasingly drew down existing stock rather than placing fresh orders. Finished-goods inventories saw their steepest drawdown since September 2023. Chris Williamson, S&P’s chief business economist, called it plainly: “beneath the survey we see some warning signs about the future growth trajectory.”

The war is the thread running through nearly every weak spot in the data. S&P says vendor delivery times deteriorated at the second-sharpest rate in four years “as the Middle East conflict continued to cause delivery delays and contribute to material shortages.” Its earlier flash report, published July 24, was more specific still, tying the disruption directly to “shipping disruption around the Strait of Hormuz.” Input costs eased only slightly, remaining above the survey’s historical average, driven by what the release attributes to high energy prices and tariffs together.

Employment tells the same cautionary tale. Factory staffing rose “only marginally” in July, with anecdotal evidence in the survey suggesting most open positions had simply been filled rather than new roles created, even as backlogs of work crept higher, marking a sign of capacity strain without the hiring to match it.

Why it matters to our part of the world

The US is the world’s largest oil consumer, and weaker US manufacturing means weaker US demand for the fuel that runs it. OPEC cut its 2026 global oil demand growth forecast to 1 mn barrels a day from 1.2 mn in its July report, even as the group approved a fifth consecutive monthly output increase and actual production remains below pre-war levels, pointing to a market absorbing more supply just as demand growth cools.

A softening US demand signal lands on Gulf producers at the worst possible moment. They’re already absorbing record war-risk ins. costs, and now the market they’re counting on to buy their oil back is showing the same confidence problem their own war is causing everyone else.

MARKETS THIS MORNING-

Asian markets are trading lower this morning, failing to echo the rally seen on Wall Street just hours earlier. South Korea’s Kospi is down 1.4%, with Japan’s Nikkei trailing behind. The Hang Seng and Shanghai Composite are also in the red. The drop comes despite US stocks ending Monday higher after US President Donald Trump signaled the resumption of talks to end the regional war.

THE CLOSING BELL-

The ADX rose 0.3% yesterday on turnover of AED 1.1 bn. The index is down 0.5% YTD.

In the green: Alpha Dhabi Holding (+9.2%), NMDC Group (+4.9%), and Emsteel Building Materials (+3.6%).

In the red: Al Khaleej Investment (-5.0%), E7 Group Warrants (-4.6%), and Burjeel Holdings (-3.2%).

Over on the DFM, the index rose 1.4% on turnover of AED 483.3 mn. Meanwhile, Nasdaq Dubai was up 1.1%.