U.S. manufacturing activity moderated in June after posting its strongest performance in three years during May, as the boost from businesses rushing to place orders ahead of potential shortages and price increases linked to the Middle East conflict began to fade. According to the Institute for Supply Management (ISM), the manufacturing Purchasing Managers Index (PMI) slipped to 53.3 in June from 54.0 in May. Although lower than economists’ expectations of 54.0, the reading remained above the 50-point mark, indicating continued expansion in the manufacturing sector, which accounts for 9.4% of the U.S. economy.
Despite the slowdown, U.S. manufacturing has now expanded for six consecutive months, supported by strong investment in artificial intelligence technologies. New orders remained robust at 56.0, though down slightly from 56.8 in May, while order backlogs declined and exports contracted. Factory inventories recovered after a prolonged downturn, and supply chain conditions improved modestly as a fragile ceasefire in the Middle East eased delivery disruptions. Supplier delivery times also improved, reflecting a gradual stabilization of supply networks.
Inflationary pressures at the factory level showed signs of easing, with the ISM’s prices paid index falling to 73.0 from 82.1 in May, aided by oil prices returning to pre-conflict levels. However, costs for technology-related products such as semiconductors and electronics remain elevated due to continued AI-driven demand. Meanwhile, factory employment remained weak, extending a prolonged period of contraction. Financial markets continue to expect further interest rate increases from the U.S. Federal Reserve this year as policymakers remain focused on controlling inflation.
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