U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic, but price pressures at the factory gate continued to deflate, a silver lining for the economy. Shrinking activity left factories resorting to layoffs, the latest Institute for Supply Management (ISM) survey showed on Monday. ISM Manufacturing Business Survey Committee Chair Timothy Fiore described the practice as happening “to a greater extent” than in previous months.
The ISM index fell to 49.6, below the 50-mark that indicates contraction; the eighth straight month has remained below that level and the longest stretch since the Great Recession ended in 2009. Economists had expected the number to edge up to 47.
In a sign of weak demand, the ISM survey’s factory-gate price inflation index was subdued for a fourth consecutive month. Inflation has been weighed down by higher borrowing costs and a shift in spending to services, often purchased on credit. Businesses are also carefully managing inventories in anticipation of slowing demand.
The drop in the ISM index was sharper than the global manufacturing PMI reading, which rose to 50.0 in June from 50.1 in May. But that still represents a contraction in output, which has declined for six months and has slipped into its steepest downturn since 2009 (if the early pandemic lockdown months are excluded).
ISM’s employment index slid to 45.9 from 45.7 in May, indicating that factories cut staff for the first time in three months. That chimed with data on Thursday that showed the number of people notified by their employers that they were being laid off rose to 133,000 in June, the highest since the outplacement firm Challenger, Gray & Christmas started keeping track of such job cuts in January 2021.
A separate survey from the Commerce Department showed new orders for durable goods fell in June, which may point to a slower growth rate in gross domestic product (GDP) during the second quarter. The report also showed investment in construction rebounded in May, boosted by a pick-up in single-family housing projects.
The survey results underscored the fragility of the U.S. economy as it struggles to recover from the collapse in consumer and business spending amid tighter credit conditions following financial market turmoil earlier this year. The weak recovery in household spending has also weighed on the property sector, which makes up about 11% of the economy and is crucial to the broader recovery. Housing will likely remain under pressure as mortgage rates rise and home prices fall. Those factors have also contributed to weakening consumer confidence, a key driver of spending. The weak manufacturing and consumer spending will likely stifle overall economic growth for some time. But the Federal Reserve is expected to continue easing policy this year, and some economists anticipate it will offer more monetary stimulus next week.
