U.S. manufacturing activity expanded at a slower rate in June, as new orders and employment contracted, according to the Institute for Supply Management’s June survey of supply chain executives.
The ISM reports its index of manufacturing activity fell 3.1% in June to a reading of 53%, marking the sector’s lowest reading since June 2020, when the economy was just beginning to recover from pandemic lows. Any reading over 50 indicates expansion, with June marking the U.S. manufacturing sector’s 25th straight month of growth.
The New Orders index fell into contraction in June, declining 5.9% to a reading of 49.2%. Meanwhile, employment contracted for a second consecutive month, declining 2.3% to a reading of 47.3%.
Production remained in expansion, though the metric expanded at a slower rate, down 0.7% to a reading of 54.9%. The ISM also reported record-long lead times for capital expenditures and materials.
Timothy Fiore, the Chairman of the ISM notes that the U.S. manufacturing sector “continues to be powered—though less so in June—by demand while held back by supply chain constraints.” Fiore went on to say that panelists reported supply chain and pricing issues as their biggest concern.
Despite the contraction in the Employment Index Fiore noted that companies reported a lower level of quits compared to May and that employers reported improvement in the ability to hire in June. “Challenges with turnover (quits and retirements) and resulting backfilling continue to plague efforts to adequately staff organizations, but to a lesser degree compared to previous months.”
One bright spot in the report found prices paid by manufacturers, which have been elevated for months, declined in June, falling 3.7% to a reading of 78.5%.
Meanwhile, the much-watched Prices Index fell 3.7% in June to a reading of 78.5%. “Prices expansion slightly eased in for a third straight month in June, but instability in global markets continues,” said Fiore.
Aluminum, electrical components, adhesives, semiconductors, packaging supplies, and steel products remain on the list of commodities up in price. Scrap steel, cold-rolled steel and hot-rolled steel are among the few products that have come down in price.
Manufacturers were slightly less optimistic in June compared to May--though not quite as optimistic as they were in May. The ISM tracked three positive comments for every one negative comment provided by industrial executives. This is down from the five positive comments for every one negative comment registered in April.
In June, fifteen of eighteen industries reported growth, strongest in apparel, leather & allied products; textile mills; printing & related support activities; computer and electronic products; and machinery.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers to the ISM's survey revealed a slowing demand environment and ongoing concerns about prices and materials shortages.
One executive in the in the apparel, leather and allied products industry said, “We are hearing from customers that their inventories are high, and sales are coming down. We expect orders to decline in the coming months until inventories are leveled properly against demand.”
Another in the electronics industry noted “Backlog is high, but incoming orders slowing this month.”
“Business is still steady,” said one executive in the fabricated metals sector. “ Some customers are pushing orders out because they have too much inventory. We are able to backfill the pushed orders from customers that want theirs earlier, so we aren’t losing capacity.”
Another in the electrical equipment sector noted “Orders and production continue to be strong, but material availability is holding us back. Cannot run enough hours to eat into the backlog.”
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