US June ISM Manufacturing Growth Slowest in 2 Years on Softer New Orders

–ISM: Labor Shortages, Supply Constraints, High Prices Continue Weighing on Sector 

–ISM’s Fiore: No Indication of US Recession Looming on Manufacturing Side

–ISM’s Fiore: US Firms Still Concerned About Ability to Import Amid Port Disruptions

By Max Sato

(MaceNews) – US manufacturing activity growth slowed in June to the lowest rate in two years with softer new orders and record high lead times needed to deliver goods as companies continued to face labor shortages, supply delays, and high prices, data from the Institute for Supply Management released Friday showed.

The US manufacturing sector index compiled by the ISM fell to 53.0 in June after picking up to 56.1 in May from 55.4 in April. It was the lowest since June 2020, when the index at 52.4 was recovering from a record low 41.6 in April 2020 during the first wave of the pandemic.

The main index stayed above the breakeven point of 50, indicating that the overall economy expanded for the 25th consecutive month.

“The U.S. manufacturing sector continues to be powered — though less so in June — by demand while held back by supply chain constraints,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in statement. “Despite the employment index contracting in May and June, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain, according to Business Survey Committee respondents’ comments.”

Panelists reported lower rates of quits compared to May. Prices expansion slightly eased for a third straight month in June, but instability in global energy markets continues. Sentiment remained optimistic regarding demand, with three positive growth comments for every cautious comment. “Panelists continue to note supply chain and pricing issues as their biggest concerns,” Fiore said.

“There is no indication here that on the manufacturing sign that recession is looming,” Fiore told reporters, adding that manufacturers continued to hire in June at similar rates as seen in the previous two months. “If the companies were concerned about demand falling off, they wouldn’t be hiring.”

China has eased Covid lockdowns but US firms are still concerned about their ability to import products as port disruptions linger, he said.

The ISM data showed that the new orders index slumped by 5.9 points to 49.2 in June after rising 1.6 points to 55.1 in May, hitting the lowest level since May 2020, when the index stood at 32.3. The new export orders index dipped 2.2 points to 50.7 in June from 52.9 in May. The prices index fell 3.7 points to 78.5 in June from 82.2 in May but stayed at a high level.

The low level of new orders came as “a bit of a disappointment,” Fiore said, but noted that “customers are overordered” and many firms are going through an adjustment phase while waiting for the record high lead times — the time between order placement and receipt — to return to more normal levels.

The production index rose for the second month in a row, up 0.7 point at 54.9 in June after rising 0.6 point to 54.2 in May and falling 0.9 point to 53.6 in April. The backlog orders index fell 5.5 points to 53.2 after rebounding 2.7 points to 58.7 in May and slumping 4.0 points to 56.0 in April.

“Backlog is high, but incoming orders slowing this month,” a firm in the computer and electronic products category told the ISM survey. A chemical producer also said: “New orders have stabilized and not increased.”

“Our suppliers are experiencing a softening of orders,” a machinery makers said but added, “We are still running at the same high level we did throughout 2021 and in early 2022.” A transport equipment maker also noted “continued strong demand.”

The employment index fell for the second straight month, down 2.3 points at 47.3 in June, after slipping 1.3 points to 49.6 in May and following increases for eight straight months through April. It was the lowest level since 47.1 in August 2020 but “panelists again indicated month-over-month improvement in ability to hire in June,” the ISM said.

The supplier deliveries index also posted the second consecutive drop, falling 8.4 points to 57.3 after dipping 1.5 points to 65.7 in May. The latest figure indicated deliveries slowed at a slower rate in June, which was supported by a slight 0.1-point increase in the inventories index to 56.0.

The imports index expanded in June after one month of contraction preceded by six consecutive months of expansion, rising 2.0 points to 50.7.

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