June Manufacturing Activity Slows to a Near Two-Year Low: PMI

Written by David Schollaert

The S&P Global US manufacturing PMI – another measure of manufacturing – fell to 52.4 in June, its lowest level in nearly two years, as business activity in the manufacturing sector expanded at a much weaker pace last month.

Last month’s results are down from 57 in May and missed the market expectation of 56 by a wide margin. (Recall that a reading above 50.0 indicates growth.) The report said the US manufacturing sector lost growth momentum in early June, as output stalled, and new orders contracted amid weaker client demand.

“The PMI survey has fallen in June to a level indicative of the manufacturing sector acting as a drag on GDP, with that drag set to intensify as we move through the summer,” said Chris Williamson, S&P Global Market Intelligence’s chief business economist. “Forward-looking indicators such as business expectations, new order inflows, backlogs of work and purchasing of inputs have all deteriorated markedly to suggest an increased risk of an industrial downturn.”

A near-stagnation of factory output and a drop in new orders led to a decrease in sales, the first since May 2020, the report said. The Composite PMI declined to 51.2 from 53.6, compared to analysts’ estimate of 53.7.

The decline in new orders led firms to work through inventories and finished goods to supplement production. Results weren’t all bad, the reduction in new orders, combined with a sustained rise in employment, led to greater success in clearing backlogs, which increased at a notably weaker pace, the report added.

Firms stated that inflationary pressures, weak client confidence in the outlook, and supply-chain disruption drove demand to fall for the first time in more than two years. And, although only marginal overall, the drop in sales signaled a marked contrast to the sharp upturn seen in May.

“Demand growth is cooling from households amid the cost-of-living crisis, and capital spending by companies is also showing signs of moderating due to tightening financial conditions and the gloomier outlook,” Williamson said. “However, most marked has been a steep drop in orders for inputs by manufacturers, which hints at an inventory correction”

By David Schollaert,

David Schollaert

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