U.S. manufacturing activity contracted for an eighth straight month in June, sinking to its lowest level since May of 2020 and marking its longest run of contractionary readings since the Great Recession. This is according to the latest survey of purchasing executives from the Institute for Supply Management.
The ISM reports its index of manufacturing activity declined 0.9% to a reading of 46%, demonstrating that the sector remains entrenched in contraction (any reading below 50 indicates contraction).
Demand in the sector, while still in contraction, improved slightly in June, with the New Orders index climbing 3% to 45.6%. Output, however, slid further, with the Production Index falling 4.4% to a reading of 46.7%.
After rebounding into expansion in May, the ISM’s Employment Index dropped back into contraction territory, falling 3.3% to a reading of 48.1. Meanwhile, prices continued to slide in June, with the ISM’s Prices Index falling 2.4% into a contractionary reading of 41.8%, after falling 9% in May.
Said Timothy Fiore, Chairman of the ISM, “The June composite index reading reflects companies continuing to manage outputs down as softness continues and optimism about the second half of 2023 weakens.”
Fiore went on to say that “Panelists' companies reduced production and began using layoffs to manage head counts, to a greater extent than in prior months, amid mixed sentiment about when significant growth will return.”
Despite the widespread contraction, one possible bright spot was the Customers' Inventories Index, which dropped into “too low” territory, “a positive for future production,” noted Fiore.
Four out of eighteen industries reported growth in the month of June: printing and related support activities; nonmetallic mineral products; primary metals; and transportation equipment.
What U.S. Manufacturers Are Saying About Business Conditions
Manufacturers across various industries expressed a range of observations about business conditions. The overall sentiment reveals a cautious outlook as the slowing U.S. economy prompts revised forecasts and reduced purchasing tendencies. While some sectors experience slowed customer orders and concerns over market stabilization, others report stable demand, managed spending, and healthy backlogs. Factors such as recession concerns, supply-demand dynamics, and labor challenges, including high turnover and labor costs, further shape manufacturers' perceptions of the business landscape.
One executive in the computer & electronic products sector reported, “The slowing U.S. economy is causing the business forecast to be revised/reduced for the remainder of 2023. Customers are less inclined to purchase far in advance."
An executive in the transportation industry, one of the industries experiencing growth, had this to say: “There were concerns that second-quarter sales were going to decrease and result in inventory levels rising; however, demand has remained stable so far. Projecting total end-of-year sales to be about where we were last year."
Another in the machinery sector said, “Orders and business are steady with a healthy backlog, but new prospective orders seem to be getting pushed back into 2024."
While one executive in the primary metals industry said, “Maintaining a strong order backlog. Continue to struggle with hiring hourly factory workers and finding qualified management candidates — higher turnover than desired. Pricing has stabilized, but labor costs remain high."
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