Manufacturing activity in the U.S. unexpectedly contracted at a slightly faster rate in June, as reported by the Institute for Supply Management (ISM) on Monday.
The ISM noted that its Manufacturing PMI declined to 48.5 in June from 48.7 in May, with any reading below 50 indicating contraction. Economists had anticipated a slight increase to 49.1.
The unexpected drop in the headline index was primarily due to a downturn in production, as evidenced by the production index falling to 48.5 in June from 50.2 in May.
Additionally, the employment index decreased to 49.3 in June from 51.1 in May, reflecting a decline in manufacturing sector employment.
On a more positive note, the new orders index rose to 49.3 in June from 45.4 in May; however, this figure still remains below the 50 threshold, indicating continued contraction.
"Demand remains subdued, as companies show reluctance to invest in capital and inventory due to current monetary policy and other conditions," stated Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.
He continued, "Production execution was lower compared to the previous month, likely causing revenue declines and exerting pressure on profitability."
Regarding inflation, the ISM reported that the prices index fell to 52.1 in June from 57.0 in May, indicating a slower pace of price growth.
The ISM is set to release a separate report on U.S. service sector activity for June on Wednesday. The services PMI is projected to decrease to 52.5 in June from 53.8 in May.
