US manufacturing expanded for a sixth straight month in June, but at a slower pace, as a key measure of input costs posted its largest drop in nearly two years. The Institute for Supply Management’s manufacturing gauge slipped 0.7 points to 53.3, still near a four-year high and marking the longest expansion streak since 2022. The price index plunged 9.1 points to 73, driven by an interim US-Iran deal that sent oil prices tumbling, though costs remain elevated due to tariffs, steel and aluminum prices, and ongoing Middle East tensions.
New orders growth moderated but stayed solid, while production hit a six-month low and order backlogs expanded at the slowest pace this year. Fourteen of 17 manufacturing industries reported growth, led by printing, electrical equipment, and textiles, but factory sentiment remained downbeat—only 34% of comments were positive. Strong capital investment tied to artificial intelligence and defense spending, along with war-driven stockpiling, have buoyed the sector, yet labor market weakness persists as the employment gauge stayed below 50 for another month.
The easing of input costs offers a temporary reprieve, but supply chain disruptions and tariff uncertainty continue to pressure manufacturers. Inventory levels rose to their highest in over a year as firms stockpile raw materials, while supplier lead times lengthened. With consumer spending weakening under higher energy costs and demand visibility declining, the manufacturing expansion faces headwinds that could slow growth further in the second half of the year.
What to watch next: The government’s monthly employment report on Thursday, which will reveal whether manufacturing hiring finally turns positive, and any shifts in Middle East tensions that could reverse the recent drop in oil prices.
Key Takeaways
- Manufacturing expanded for a sixth month but at a slower pace, with the ISM index slipping to 53.3.
- Input costs saw the biggest monthly drop since July 2022, driven by falling oil prices after the US-Iran interim deal.
- Factory sentiment remains weak, with only 34% of comments positive and employment still contracting.
- Supply chain disruptions and tariff uncertainty are driving inventory stockpiling to the highest level in over a year.
Insights & Analysis
- The easing of input costs may be temporary if Middle East tensions reignite, making manufacturers' stockpiling strategy a hedge against future volatility.
- The divergence between strong capital investment (AI, defense) and weak consumer demand suggests a two-speed economy, where manufacturing growth is increasingly reliant on government and tech spending rather than broad-based recovery.