The U.S. manufacturing sector experienced a contraction in June, but the decline was less severe than many had expected, as companies weigh the effects of extensive tariffs imposed by the U.S. government.
According to data released Tuesday by the Institute for Supply Management (ISM), the manufacturing purchasing managers’ index (PMI) edged up to 49.0 from May’s 48.5, surpassing forecasts that predicted a reading of 48.8. Since a PMI below 50 signals contraction, the sector continues to shrink, albeit at a slower pace.
New orders fell for the fifth consecutive month, dropping to 46.4 in June from 47.6 in May. Despite this, improvements in inventory and production levels contributed to the modest overall increase in the index.
Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, explained: “The Inventories Index remains in contraction territory (though at a slower rate compared to May) after expanding in April, as companies completed pull-forward activity ahead of tariffs. The Supplier Deliveries Index indicated slower deliveries but improved performance, indicating that the delays in clearing goods through ports of entry are largely complete.”
Spence also noted that the heightened U.S. tariffs have accelerated price increases. Meanwhile, the imports index remained in contraction but showed signs of recovery.
Analysts at Vital Knowledge commented in a note: “[T]he manufacturing ISM is relatively neutral in that it doesn’t jolt the narrative in one way or the other (although the implications remain stagflationary with muted growth and hot prices).”