US Factory Activity in June at Weakest Level in Three Years US factory activity contracted for an eighth consecutive month in June, sinking to its weakest level in more than three years. A report from the Institute for Supply Management (ISM) showed that the manufacturing gauge fell to an index of 46 from 46.9 in May. This is the lowest level since May 2020, and worse than all but 1 forecast in a Bloomberg survey of economists. The decline in the ISM production gauge, also the lowest since May 2020, is indicative of weak demand for merchandise.
The index of new orders contracted for a 10th straight month, and order backlogs shrank, contributing to a decreased measure of manufacturing employment. The ISM gauge of employment decreased to a 3 month low of 48.1, suggesting fewer producers added jobs over the month.
The current high inflation and shortages of essential household items has led to many Americans cutting back on their spending. Eleven different industries reported shrinking activity, led by plastics & rubber products, wood products, and textile mills. Feedback from the report showed customers were less inclined to purchase far in advance, and struggles with hiring hourly factory workers & qualified management candidates was also cited. In contrast to consumer demand, recent data has indicated healthy business spending on equipment.
This, if sustained, has the potential to provide some support for the manufacturing sector. Producers have also seen aid in declining commodities prices. The ISM index of prices paid for materials slid to 41.8, the lowest this year. Regional surveys from the Federal Reserve Bank have all highlighted a struggling manufacturing sector, reinforcing the messages from the ISM report. Factories and manufacturers are also having to manage their inventories more closely.
The ISM index of customer stockpiles shrank at its fastest pace since October, and the index of factory inventories reached the lowest level since 2014. The outlook for US factories and manufacturing activity is uncertain until there is a clearer indication of a recovery in consumer demand and employment. Reports from the ISM will continue to closely watched for indicators of recovery or further downside risk.
