The US manufacturing sector contracted in June for the fourth consecutive month after two months of expansion preceded by 26 months of contraction, according to the nation’s supply executives in the latest Manufacturing ISM Report On Business.
“The Manufacturing PMI (Purchasing Managers’ Index) registered 49 percent, 0.5 percentage point higher compared to the 48.5 percent reported in May. Of the five subindexes that directly factor into the Manufacturing PMI, two (Production and Supplier Deliveries) were in expansion territory, up from one in May. The slowing of supplier deliveries eased month over month, with a 1.9-percentage point improvement, indicating that port congestion and a drawdown of manufacturing inventories have eased. Of the six biggest manufacturing industries, four (Petroleum & Coal Products; Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products) registered growth,” says Spence. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.
“A Manufacturing PMI above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy. As such, the June Manufacturing PMI indicates the overall economy grew for the 62nd straight month after contracting in April 2020.
“The past relationship between the Manufacturing PMI and the overall economy indicates that the June reading (49 percent) corresponds to a change of plus-1.9 percent in real gross domestic product (GDP) on an annualized basis,” says Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
“ISM’s New Orders Index contracted in June for the fifth consecutive month after three consecutive months of expansion, registering 46.4 percent, a decrease of 1.2 percentage points compared to May’s figure of 47.6 percent. This reading is below the 12-month moving average (48.4 percent) for the New Orders Index, which hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. Panelists noted continued weak demand, with a 1-to-1.7 ratio of positive comments to those expressing concern about near-term demand. Overall, new orders continue to slow, as which party will pay for potential tariff costs is still the prime issue in negotiations between buyers and sellers,” said Spence.
“The seven manufacturing industries reporting growth in new orders in June are: apparel, leather and allied products; petroleum and coal products; furniture and related products; nonmetallic mineral products; miscellaneous manufacturing; food, beverage and tobacco products; and computer and electronic products. The seven industries reporting a decline in new orders in May, in order, are: Paper Products; Textile Mills; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; Machinery; and Fabricated Metal Products.
“The Production Index entered expansion territory for the first time in four months in June, registering 50.3 percent, 4.9 percentage points higher than the May reading of 45.4 percent. Prior to the readings of expansion in January and February, the index was in contraction territory for eight months, with the previous reading above 50 percent in April 2024 (50.7 percent).
“Production levels in June, while improved, are still fragile as order books remain weak and new orders continue to decline. Panelists noted reduced output in production due to business-climate uncertainty, with a 1-to-1.5 ratio of positive to negative comments,” said Spence. An index above 52.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
“The six industries reporting a decrease in production in June, in order, are: textile mills; paper products; wood products; nonmetallic mineral products; chemical products; and food, beverage and tobacco products.
“Delivery performance of suppliers to manufacturing organizations was slower for the seventh consecutive month in June, with the Supplier Deliveries Index registering 54.2 percent, a 1.9-percentage point decrease compared to the reading of 56.1 percent reported in May. This index reading, which indicates slower but slightly improved delivery performance, indicates the easing of port congestion once the pull-forward demand was largely completed in May.
“The findings in June suggest the deliveries continued to be strained because suppliers and panelists’ companies were haggling over who pays for applied tariffs,” said Spence. “A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries. The only industry reporting faster supplier deliveries in June is Paper Products.
“ISM’s Customers’ Inventories Index registered a reading of 46.7 percent in June, an increase of 2.2 percentage points compared to the reading of 44.5 percent in May.
“Customers’ inventory levels in June continued to contract but moved closer to ‘about right’ territory. Panelists reported that the amounts of their companies’ products in their customers’ inventories continue to suggest a demand level that remains positive for future production,” says Spence.
“The four industries reporting customers’ inventories as too high in June are: textile mills; paper products; computer and electronic products; and transportation equipment.
“No industries reported paying decreased prices for raw materials in June. ISM’s Backlog of Orders Index registered 44.3 percent, a decrease of 2.8 percentage points compared to the May reading of 47.1 percent, indicating order backlogs contracted for the 33rd consecutive month after a 27-month period of expansion.
“The 12 industries reporting lower backlogs in June are: paper products; nonmetallic mineral products; textile mills; plastics and rubber products; wood products; fabricated metal products; primary metals; chemical products; electrical equipment, appliances and components; machinery; transportation equipment; and food, beverage and tobacco products.
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