US manufacturing eases to 53.3 in June as price pressures cool

U.S. factory activity expanded for a sixth straight month in June but at a slower pace than expected, while a key inflation gauge tumbled by the most in over a year.

U.S. manufacturing grew for a sixth consecutive month in June but lost momentum from May's surge, while factory-gate inflation cooled sharply as supply chains improved after a fragile Middle East ceasefire. The Institute for Supply Management's manufacturing PMI slipped to 53.3 from 54.0 in May, below the 53.9 median estimate in a Reuters poll of economists. A reading above 50 indicates expansion in the sector, which accounts for 9.4% of the U.S. economy.

"June's data shows manufacturing is still expanding, but the pace of growth is moderating as the boost from front-loaded orders fades," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

The ISM's prices paid index — a measure of input costs — plunged to 73.0 from 82.1 in May, well below the 77.5 consensus estimate and marking the steepest monthly decline since early 2025. The drop reflected lower oil prices after the shaky Middle East truce pushed crude back to pre-war levels, though costs for technology goods like semiconductors and electronics remain elevated because of the AI investment boom. New orders eased to 56.0 from 56.8, while order backlogs decreased and exports contracted. Factory inventories rebounded after a prolonged period of contraction, and supplier deliveries slowed to 57.4 from 60.6, signaling improved supply chain conditions.

The employment index improved to 49.7 from 48.6 but remained below the 50 threshold for the 40th time in 41 months, reflecting persistent weakness in factory hiring. Since January 2023, the ISM manufacturing employment gauge has contracted in all but one month, pointing to structural challenges in the sector even as overall activity has expanded.

The combination of steady but moderating growth and easing price pressures strengthens the case for a soft landing, though financial markets still expect the Federal Reserve to raise interest rates this year. The Fed held its benchmark overnight rate at 3.50%-3.75% in June, but updated quarterly projections showed policymakers expect to tighten further. The last time input cost inflation cooled this sharply was in early 2025, after which the Fed paused its tightening cycle for two consecutive meetings before resuming later that year.

Treasury yields edged lower after the data, with the two-year note falling three basis points to 4.12% as traders trimmed bets on the pace of rate increases. The S&P 500 opened modestly higher, extending its year-to-date gains as the data reinforced expectations that the economy can absorb tighter policy without tipping into recession.

This article is for informational purposes only and does not constitute investment advice.