TEMPE — Economic activity in the manufacturing sector contracted in June for the fourth consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Susan Spence, MBA, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:

Spence states, “In June, U.S. manufacturing activity slowed its rate of contraction, with improvements in inventories and production the biggest factors in the 0.5 percentage point gain in the Manufacturing PMI.

“The demand indicators remain mixed, with the New Orders and Backlog of Orders indexes contracting at faster rates, while the Customers’ Inventories and New Export Orders indexes contracted at slower rates. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.

“Regarding output, the Production Index increased month over month and is now in expansion territory, however; the Employment Index dropped further into contraction as managing head count is still the norm, as opposed to hiring. The mixed indicators in output suggest companies still being cautious in their hiring even with an increase in production."

“Middle East unrest as well as unstable long-term tariff positions continue to impact second- and third-tier sources, which is applying pressure to material costs. Costs are up 6 percent to 10 percent over budgeted inflation — and the forecast accounted for the volatility expected with the current administration," says a wood products respondent to the report. 

Spence continues, “Finally, inputs are defined as supplier deliveries, inventories, prices and imports. 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. Tariffs-induced prices growth accelerated, while the Imports Index remained in contraction but regained the ground it lost the previous month.

“Looking at the manufacturing economy, 46 percent of the sector’s gross domestic product (GDP) contracted in June, down from 57 percent in May; however, 25 percent of GDP is strongly contracting (registering a composite PMI of 45 percent or lower), up from 5 percent in May. The share of sector GDP with a PMI® at or below 45 percent is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, four (Petroleum & Coal Products; Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products) expanded in June, compared to two in May,” says Spence.

The nine manufacturing industries reporting growth in June — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Furniture & Related Products; Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The six industries reporting contraction in June — in the following order — are: Textile Mills; Wood Products; Paper Products; Chemical Products; Transportation Equipment; and Fabricated Metal Products.

Both the wood products sector and the furniture & related products sectors reported an increase in prices for raw materials.