The US manufacturing sector extended its run of expansion in June, although the pace of growth eased and companies cut jobs at the fastest rate since the height of the pandemic, according to the latest S&P Global US Manufacturing PMI.
The headline PMI registered 53.9 in June, down from 55.1 in May, marking the eleventh consecutive month above the 50.0 no-change threshold that separates expansion from contraction. While output and new orders continued to grow at historically strong rates, both slowed to three-month lows.
Manufacturers attributed rising demand to new product launches and customers bringing forward orders ahead of anticipated price increases. However, export markets remained under pressure, with overseas orders falling for the twelfth successive month as tariffs and weaker international demand continued to weigh on sales. Some firms also cited the ongoing conflict in the Middle East as a factor affecting global demand.
Despite healthy order books, employment weakened significantly. Manufacturers reduced headcount at the fastest pace since May 2020, and, excluding the pandemic period, the steepest rate since October 2009. The reduction in staffing, coupled with rising demand, led to a further increase in backlogs of work.
Supply chains also remained under strain. Shipping delays and port congestion prompted firms to increase purchasing activity and build inventories of inputs at the strongest pace in more than a year in an effort to safeguard production. Meanwhile, tariffs and higher raw material prices continued to drive elevated input cost inflation, although both input cost and selling price inflation moderated compared with May.
Business confidence also softened during the month, falling to an eight-month low. Although manufacturers remained optimistic about output over the coming year, concerns over the strength of the domestic economy tempered expectations.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “US manufacturers reported a further marked improvement in growth of output and order books in June, according to S&P Global’s PMI data, extending the growth spurt that has been reported since the outbreak of the war in the Middle East. Employment was nevertheless cut sharply as firms often sought to offset the rising cost of energy and raw materials.
“Supply chain delays and upward price pressures continued to be widely reported, albeit moderating thanks to recent news of an improving situation in the Middle East. However, despite the recent drop in energy prices and brighter outlook for shipping, business confidence has fallen sharply, in part reflecting concerns that an end to war-related inventory building could start to act as a drag on sales.”
