Economic activity in the U.S. manufacturing sector expanded in June for the sixth consecutive month to 53.3%, or 0.7 percentage point lower than May, according to the Institute for Supply Management’s latest Purchasing Managers’ Index.
The overall economy grew for the 20th month in a row, ISM reported. A figure below 50% indicates an industry in contraction.
The S&P Global U.S. Manufacturing PMI showed a slightly higher rate of expansion, registering 53.9, down from 55.1 in May.
Although “the ongoing war and price volatility” remain a concern, “the badness is better than last month,” Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said during a media call on Wednesday.
“In June, 34% of the comments were positive and 66% negative, with a 1-to-1.9 ratio of positive to negative sentiment,” she said in a news release.
Spence added that the Iran war was mentioned in 31% and tariffs in 17% of the negative comments, while 50% of the panelists mentioned pricing volatility as an issue for their companies.
Five of the six largest manufacturing industries — computer and electronic products, machinery, transportation equipment, chemical products, and food, beverage and tobacco products, in that order — expanded in June. Petroleum and coal products was the only exception.
The New Orders Index expanded for the sixth consecutive month after four straight readings in contraction, registering 56%, compared to 56.8% in May. The June reading of the Production Index at 52.2% wasdown from May’s reading of 54.3%.
The Prices Index remained in expansion at 73%, a 9.1-percentage point decrease from May’s reading of 82.1%. The Backlog of Orders Index registered 50.5%, down 1.7 percentage points compared to the 52.2% recorded in May.
The Employment Index registered 49.7%, up 1.1 percentage points from May’s figure of 48.6%. The manufacturing industry added 7,000 jobs in May, regaining its footing after a lull in April.
The Supplier Deliveries Index’s reading of 57.4% was down 3.2 percentage points from its May reading of 60.6%. Supplier Deliveries is the only ISM PMI Report index in which a reading of above 50% indicates slower deliveries.
The Inventories Index returned to expansion, registering 51.4%, up from May’s reading of 49.9%. The Customers’ Inventories Index reading of 42.3% fell slightly from the 42.7% recorded in May.
The New Export Orders Index returned to contraction with a reading of 48.5%, down from the 50.6% registered in May. The Imports Index registered 52.9%, down slightly from May’s reading of 53%.
Two of four demand indicators — New Orders and Backlog of Orders — expanded in June, and the Customers’ Inventories Index remained in “too low” territory, contracting at a faster rate. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.
Sentiment improving
Spence was relatively upbeat during the call. “Prices are going in a really wonderful direction,” she said.
“Overall, we had very positive comments,” Spence said. “This is a good report. It’s still really all about price, but optimism is creeping in” when it comes to the rest of the year.
Still, many respondents expressed concerns about prices in June.
“The conflict in Iran has impacted pricing in every category of raw materials,” said one respondent in the chemical products industry. “Especially, items that have a heavy concentration of oil in the components like our adhesives.”
Price volatility is forcing a “more conservative approach to capital expenditures,” another respondent in the computer and electronic products industry said. “We are seeing an increase in consumables and services purchasing from sectors like chemical analysis, per- and polyfluoroalkyl substances (PFAS), and environmental and pharmaceutical testing,” they said.
Continued policy uncertainty around tariffs and global trade was also on the minds of many respondents.
“Core business remains solid in the face of ongoing geopolitical uncertainty,” one manufacturer said. “Cautiously optimistic that a deal will be reached to reopen the Strait of Hormuz; concerned about ongoing ripple effects even when the strait reopens, but situation is highly concerning if the strait remains closed.”
