June manufacturing output shows improvement but falls short of growth, reports ISM

Manufacturing activity fell for the fourth consecutive month in June, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The report’s benchmark reading, the PMI, came in at 49.0 (a reading of 50 or higher indicates growth), up 0.5% from May’s 48.5 reading, which was off 0.2% from April’s 48.7 reading. The last four months of declines were preceded by gains, with January and February readings at 50.9 and 50.3, respectively, and were preceded by 26 months of declines. ISM added that the overall economy remained in expansion mode for the 62^nd consecutive month.

The June PMI topped the 12-month average of 48.6. January’s 50.9 and October’s 46.9 mark the respective high and low readings for that period.

ISM reported that nine manufacturing sectors saw growth in June, including: 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. Sectors seeing declines included: Textile Mills; Wood Products; Paper Products; Chemical Products; Transportation Equipment; and Fabricated Metal Products.

The report’s key metrics were mixed in June:

• New Orders, considered the engine driving manufacturing, fell 1.2%, to 46.4, contracting, at a faster rate, for the fifth consecutive month. The category has not seen consistent growth since a 24-month stretch of expansion ended in May 2022 (ISM reported that seven sectors saw growth in New Orders in May);
• Production, at 50.3, increased 4.9% growing after four months of contraction, following two months of growth, hitting the 50 mark for the first time since April 2024’s 50.7 reading, with eight sectors reporting growth;
• Employment, at 45.0, fell 1.8%, contracting, at a faster rate, for the fifth consecutive month, and for the 31^st time in the last 38 months, with four sectors reporting growth;
• Supplier Deliveries, at 54.2 (a reading above 50 indicates slower deliveries), were off 1.9% from May, slowing, at a slower rate, for the seventh consecutive month and indicating slower but slightly improved delivery performance, with nine sectors reporting slower supplier deliveries;
• Backlog of Orders, at 44.3, decreased 2.8%, contracting, at a faster rate, for the 33rd consecutive month, following 27 months of growth, with three sectors reporting growth;
• Prices, at 69.7, rose 0.3%, increasing, at a faster rate, for the ninth consecutive month, up 17.2% over the last six months, with the last three months representing the highest readings since June 2022 (78.5 percent): 69.8 percent in April, 69.7 percent in June, and 69.4 percent in May, with 15 sectors reporting higher prices;
• Inventories, at 49.2, rose 2.5%, contracting, at a slower pace, for the second consecutive month, with nine sectors reporting higher inventories;
• Customer Inventories, at 46.7, fell 1.7%, coming in “too low,” at a slower rate, for the ninth consecutive month, with four sectors reporting customers’ inventories as too high; and
• Imports, at 47.4, increased 7.5%, contracting, at a slower rate, for the third consecutive month, with seven sectors reporting growth

Tariffs and the economy were again the main themes cited in ISM panelist comments.

Business has notably slowed in last four to six weeks,” said a Fabricated Metal Products panelist. “Customers do not want to make commitments in the wake of massive tariff uncertainty.”

And a Miscellaneous Manufacturing panelist explained that the geopolitical environment remains volatile on various fronts, including: (1) ongoing shifts in U.S. tariff policy make it difficult to plan, (2) emerging conflicts in the Middle East could pose long-term commodity risks and (3) China measures on rare earth materials are causing challenges. The panelist added that the overall outlook for his company is positive with the caveat that it’s just extremely hard to make near-term supply plans/strategies or budgets.

In an interview with LM, Susan Spence, Chair of the ISM’s Manufacturing Business Survey Committee, said that while the PMI did not fully return to growth mode, there were some decent progressions on a few different fronts.

“The production number going up was kind of a relief, especially now that it is officially in expansion territory,” said Spence. “And imports rebounded, more than making up for May’s losses, which were a tariff threat impact, in addition to the 90-day pause [set to expire on July 8], with people scrambling to turn their orders back on before the pause ends, which is what we assume. The production number was interesting, because new orders are contracting faster, with the new orders and backlog of orders numbers still pretty low. What is left in the factories to produce would be my question.”

Addressing manufacturing employment, she Spence observed that further reduction in June is not good news, especially for the people impacted by it, adding that companies are continuing to adjust their cost structures out of necessity.

“If production is up but new orders are not and contraction slowed down for new export orders [at 46.3 in June], the question would be how do you keep churning out more production if you don’t have the material pipeline?” she said.

With the 90-day reciprocal tariffs pause set to expire soon, Spence said that the ongoing uncertainty remains intact, with what happens after that being largely unknown. And she noted that leaves open the question of how manufacturers’ customers will respond, depending on the outcome. She said that will be based on things like increased order activity and what happens with the backlog of orders, hiring, and capital investment decisions.

“If these agreements are as permanent as they can get, I still think we have the fortunate environment where even if deals are made, there is this recent history that things could also change, too,” she said. “It is volatile.”