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The numbers: The ISM barometer of American factories fell to a two-year low of 53% in June in another sign the U.S. economy is slowing. High inflation is still a big problem, but price pressures also eased for the third month in a row.
The Institute for Supply Management’s index dropped 3.1 points from 56.1% in May.
While any number above 50% signifies growth, the June reading was the weakest since June 2020. Economists polled by The Wall Street Journal forecast the index to total 54.3%.
The report, compiled by the Institute for Supply Management, is seen as a mirror of the health of the U.S. economy.
Big picture: Manufacturers are still operating at high capacity, but business is not growing quite as rapidly as it was last year. New orders contracted in June for the first time in two years.
Ongoing shortages of supplies and labor are part of the problem, but customers have also scaled back their orders because of high prices, long lead times and excess inventory. It’s another sign the U.S. economy is slowing.
Key details:
- The index of new orders declined 5.9 points to 49.2%. That’s the lowest level since May 2020.
- The production barometer rose 0.7 points to 54.9%, indicating that factories are still running at full tilt.
- The employment gauge dropped 2.3 points to 47.3%, the lowest in 22 months.
- The prices index, a measure of inflation, slid 3.7 points 78.5%. It’s fallen three months in a row after touching 87.1% in March.
Timothy Fiore, chairman of the ISM survey, downplayed the decline in new orders. He said some companies over-ordered earlier in the year because they were unsure when the products or supplies would arrive in light of record lead times. Now they are whittling down excess inventories.
Most manufacturers are still trying to hire because demand remains strong, he said, pointing to the increase in production .
“There is no indication here on the manufacturing side of a pending recession,” Fiore said. “If companies were concerned about demand falling off, they wouldn’t be hiring.”
Fiore said he would only be worried if lead times fell and ordered remained weak.
Looking ahead: “U.S. manufacturers will face less rosy economic backdrop in the second half of 2022,” said Oren Klachkin, lead U.S. economist at Oxford Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
fell in Friday trades, as a recent mini-rally appears fizzled out and left markets well below their all-time highs.
