The ISM Manufacturing Index dipped to 51.7 in June after 52.1 in May and was the lowest since 51.5 in September 2016. Survey respondents’ comments indicated that the impacts of tariff policy was pervasive on orders, production, along the supply chain, and in costs for raw materials and prices of finished goods. There was mention of negative effects of adverse weather for the agricultural sector, but mainly it was tariffs with China and Mexico that was driving business decisions.
The Manufacturing Index was still on track for expansion and extended its string of “growing” readings to 34 months. Conditions could improve in July now that trade negotiations with China are back on. However, talks are not agreements. The factory sector still faces heightened uncertainties until negotiations are complete. The short-term relief may spark another round of activity to get ahead of the possibility that the talks will drag on or even fail.
New orders were at neutral (50.0 in June after 52.7 in May) and order backlogs continued to contract (47.4 after 47.2). Production picked up (54.1 after 51.3) but without work upward momentum for new orders and/or orders in the pipeline, the pace may not be sustained.
If factories are seeing slower activity, businesses are still hiring. The employment index moved higher for a second month in a row (54.5 in June after 53.7) in May). Delivery times fell to just above neutral (50.7 after 52.0). Inventories dipped below neutral for the first time since December 2017 (49.1 after 50.9). Inventory management will be cautious unless and until it looks like activity in the factory sector has revived sustainably.
The prices paid index fell to 47.9 in June, its lowest since 38.3 in February 2016. Declines in energy prices are the main reason.
Both the indexes for export orders (50.5 after 51.0) and imports (50.0 after 50.0) continued to hover around the neutral mark where they have been for the past four months. There is only modest demand from global customers and careful domestic purchasing.
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