US Manufacturing Expands Slower, Input Costs Decline

US manufacturing activity expanded for the sixth consecutive month in June, indicating continued growth in the sector. The pace of this expansion, however, moderated compared to previous periods. A key factor contributing to this shift was a notable decrease in the costs of inputs, a reversal from recent trends that had seen input prices surge due to global conflicts.

The Institute for Supply Management (ISM) reported that its Purchasing Managers' Index (PMI) for manufacturing fell to 50.9 in June, down from 51.3 in May. While this figure still signifies expansion (any reading above 50 indicates growth), it represents a slower rate of increase. The decline in the PMI suggests that while the manufacturing sector is still growing, it is doing so at a less robust pace.

Crucially, the ISM's prices paid index, a key indicator of input costs, dropped to 51.0 in June. This is a significant decrease from 57.0 in May and marks the lowest level since December 2020. A reading above 50 indicates that prices are increasing, so the drop to 51.0 suggests that while costs are still rising, the rate of inflation for manufacturing inputs has substantially slowed. This easing of cost pressures could provide some relief to manufacturers who have been contending with higher expenses.

Other components of the ISM report also provided insights into the sector's performance. The new orders index decreased to 49.2 in June, down from 50.0 in May, indicating a slight contraction in demand for manufactured goods. The production index also saw a decline, falling to 50.8 from 51.1. However, the employment index rose to 54.6 in June, up from 51.3 in May, suggesting an increase in manufacturing employment. This mixed performance indicates a sector navigating both headwinds and tailwinds.