US manufacturing activity slowed more than expected in June, with the magnitude of new contract orders for the first time in two years, a sign that the economy was cold amid aggressive criticism of the Federal Reserve’s tightening policy (Fed).

Friday’s Institute for Supply Management (ISM) survey also shows the extent of outsourcing work at the factory for a second consecutive year, despite the “overwhelming majority” of companies indicating that they were hiring.

The deceleration in manufacturing follows subdued growth in consumer spending in May as well as weak housing, building permits for factory production, which left some economists expecting the economy is contracting again in the second quarter after the drop in GDP during the first three months of the year.

“Capital spending is starting to weaken, and that’s just adding to the evidence that the U.S. economy is ‘it’s slowing down fast,'” said Shannon Serry, an economist at Wells Fargo in New York.

The ISM Scan index of national factory activity fell to 53.0 last month, the lowest reading since June 2020, when the sector rebounded from the COVID-19 slowdown. which followed the reading of 56.1 in mayo. A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11.8% of the US economy.

Economists polled by Reuters expected the index to fall to 54.9. some of the moderation in factory activity reflects a shift in spending back on goods services.

The six largest manufacturing industries – computer electronics, machinery and transport equipment, petroleum and coal products, food and chemical products – are showing moderate to strong growth.

The Fed last raised its monthly policy rate by three-quarters of a percentage point, the biggest increase since 1994, to suppress high inflation. another rate of similar size height expected in July. The U.S. central bank Standard Interest has raised its overnight rate by 150 basis points since March.

ISM scan forward-seek new The orders sub-index fell to 49.2 from 55.1 in May. this was the indicator’s first dip below the 50 level since May 2020.

US stocks were trading at a low. The dollar appreciated against the basket of currencies. US Treasury bond prices were higher.

Softening commands

slow growth in orders It has been a recurring topic among most companies, with Only a few, including transportation equipment manufacturers and electrical equipment and component OEMs, claiming demand The ISM survey showed a strong shadow.

Food producers reported that business was slower than expected in volume, “although they have” already received large orders for the fall. “Machine producers said” our suppliers are seeing an easing in demand # %s. »

However, manufacturers have a lot of work on their hands to keep factories running. Backorders continued to accumulate steadily in June.

Either way, business inventories were revised up sharply in the first quarter, trailblazing retailers like Walmart and Target both said they were carrying a lot of goods, and the ISM survey still saw customer inventories as “extremely low”.

Manufacturers of leather apparel and related products acknowledged excess inventory held by their customers and said they “expect lower orders in the coming months until inventory is properly settled by report on demand. “

Some economists are realizing the strong inventory build in the last K quarter is a sign that supply chain bottlenecks were easing.

In fact, the ISM survey counter for supplier deliveries fell to 57.3 from Mayo’s 65.7. A reading above 50% indicates slower factory deliveries.

“This supplier delivery index relief may be linked to reduced supply chain issues but also doubled,” said Daniel Silver, chief economist at JP Morgan in New York.

Inflation news was encouraging. Scale of prices manufacturers pay to read fell from 78.5 to 82.2 in May, supporting the view that inflation may have peaked.

Decreasing Demand Mix It is likely that a shortage of workers will cause the factory labor measure to drop in addition to May’s reading of 47.3 out of 49.6. tech companies like Tesla have been locked out of workers.

With 11.4 million vacancies around the economy at the end of April, economists warn of continued weakness in the factory labor reading as a sign that growth in total wages is s out of breath.

“Purchasing managers say they’re cutting employees, but layoffs don’t hit Christopher Robke, chief economist at FWDBONDS, said the weekly jobless benefits data so far in New York City.” The indicator employment was also below 50 last month and even non-farm payrolls in May for gold manufacturing were up 18,000,” added.


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