Manufacturing-sector surveys suggest sluggish growth and little.

The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index fell 53.0 percent in June, down 3.1 points from 56.1 percent in May (50 neutral). June is the 25th reading in a row above the neutral threshold, but the level is sharply down from the March 2021 peak (see first chart). The results of the survey indicate that the manufacturing sector is set to expand, but demand has softened, and price pressures have eased somewhat, although they were significant. However, survey respondents were optimistic about future needs.

The manufacturing index registered 54.9 percent results in June, up 0.7 points from May (see at the top of the second chart). The index has been above 50 for 25 months, but the six-month average has declined for 15 consecutive months and the June average is 55.6 percent, the lowest since September 2020.

The employment index posted its third consecutive fall in June, falling below the neutral 50 threshold for the second month in a row. 47.3 percent reading suggests two-month contract employment (see top of second chart). The report said, “Despite the employment index contracts in May and June, companies have improved their progress in tackling medium-term labor deficits at all levels of the supply chain, according to business survey committee respondents. Panelists reported a lower rate of resignation than in May. “

The Bureau of Labor Statistics reports the employment situation for June will be published on Friday, July 8, and expects to gain 265,000 non-farm wage jobs, including the addition of 12,000 jobs in production.

The new orders index fell 5.9 points to 49.2 percent in June. This is the first lesson below neutral since May 2020 (see below the second chart). The new export order index, a separate measure from the new order, fell to 50.7 percent from 52.9 percent in May. The new export order index has been above 50 for 24 consecutive months.

The backlog-of-order index fell to 53.2 percent from 58.7 percent in May, a 5.5-point fall (see second chart below). The measure came back from a record-high 70.6 percent in May 2021 but remained above 50 for 24 consecutive months. The indicator suggests that manufacturers ’backlogs continue to grow, but the pace has slowed significantly in recent months.

Consumer inventory is still considered very low in June, with the index rising 2.5 points to 35.2 percent since May (results below 50 indicate very low customer inventory). The index has been below 50 for 69 consecutive months. Inadequate inventory is a positive sign for future production.

The price index of input instruments returned for the third consecutive month in June, down 3.7 points to 78.5 percent (see third chart). The index fell below 87.1 percent in March 2022 and suggests that price pressures, although still intense, have eased somewhat.

The supplier delivery index registered 57.3 percent results in June, 8.4 points lower than the May results. In May 2021, the index was 78.8 percent. The decline compared to last year indicates that deliveries are much slower (see Chart 3).

Overall, production survey respondents are optimistic that healthy demand will continue. Significant softening among several independent survey indicators suggests that supply and demand may move closer to equilibrium, helping to ease some upward price pressures. Moreover, in terms of supplies, the consequences of Russia’s war against Ukraine continue to disrupt the global supply chain. In terms of demand, continued high price increases are affecting consumer demand and an intense Fed policy tightening cycle is increasing the cost of financing. The outlook remains highly uncertain.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for more than 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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