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U.S. Manufacturing Contracts in June

July 18, 2023
After posting 28 straight months of growth, the U.S. manufacturing sector contracted for the eighth month in a row in June.

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In June, the U.S. manufacturing sector contracted for the eighth month in a row, according to the latest Manufacturing Institute of Management (ISM) Report On Business. In June, the Purchasing Managers' Index (PMI) dropped by 0.9% compared to the prior month.

Regarding the overall economy, the lower PMI indicates a 7-month contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 45.6%, three percentage points higher than the figure of 42.6% recorded in May. Other key findings from the June report include:

  • The Production Index reading of 46.7% is a 4.4-percentage point decrease compared to May's figure of 51.1%.
  • The Prices Index registered 41.8%, down 2.4 percentage points compared to the May figure of 44.2%.
  • The Backlog of Orders Index registered 38.7%, 1.2 percentage points higher than the May reading of 37.5%.
  • The Employment Index dropped into contraction, registering 48.1%, down 3.3 percentage points from May's reading of 51.4%.

"The U.S. manufacturing sector shrank again, with the Manufacturing PMI losing ground compared to the previous month, indicating a faster rate of contraction,” ISM’s Timothy R. Fiore said in a press release. "Of the six biggest manufacturing industries, only one — Transportation Equipment — registered growth in June.”

"Demand remains weak, production is slowing due to lack of work and suppliers have capacity,” Fiore continues. “There are signs of more employment reduction actions in the near term.”

Industries Registering Growth

According to ISM, the four manufacturing industries that reported growth in June include printing and related support activities; nonmetallic mineral products; primary metals; and transportation equipment. Those industries reporting contraction included (but weren’t limited to) plastics and rubber products; wood products; electrical equipment; computer and electronic components; fabricated metal products; and machinery.

"The slowing U.S. economy is causing the business forecast to be revised/reduced for the remainder of 2023. Customers are less inclined to purchase far in advance,” one computer and electronic products manufacturer told ISM.

"Customer orders have definitely slowed down. Our company thought the second half of 2023 would be better than the first half, but this doesn't seem to be the case,” a chemical products manufacturer added.

Makers of transportation equipment shared a brighter picture and outlook. "There were concerns that second-quarter sales were going to decrease and result in inventory levels rising; however, demand has remained stable so far. Projecting total end-of-year sales to be about where we were last year,” said one producer in that sector.

Components & Chips Still in Short Supply

According to the ISM report, the commodities that went up in price in June included electrical components, electronic components and carbon steel. Prices on aluminum, plastic resins, hot-rolled steel products and corrugate all retreated during the 30-day period, while commodities in short supply included electrical components; electrical controls and equipment; electronic assemblies; electronic components; and semiconductors.

According to ISM, the delivery performance of suppliers to manufacturing organizations was faster for the ninth straight month in June, as the Supplier Deliveries Index registered 45.7%, 2.2 percentage points higher than the 43.5% reported in May. For context, the Supplier Deliveries Index's lowest reading in the last 14 years was in March 2009 (43.2%).

“At face value, the ISM survey is consistent with an economy that is in recession,” Reuters reports. “But the so-called hard data such as nonfarm payrolls, first-time applications for unemployment benefits and housing starts, suggest the economy continues to grind along.”

Risks of a downturn have, however, increased as businesses and consumers deal with the 500 basis points worth of interest rate increases from the Federal Reserve since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years.

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About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.