U.S. manufacturing contracted for a third straight month in June as demand remained subdued, while a drop in a measure of prices paid by factories for inputs to a six-month low suggested that inflation could continue to subside.
The ISM’s manufacturing PMI slipped to 48.5 last month from 48.7 in May. A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.3% of the economy. The PMI remains above the 42.5 level, which the ISM says over a period of time indicates an expansion of the overall economy.
Commentary from manufacturers was mostly downbeat. Makers of chemical products reported a “high volume of customer orders.” Transportation equipment manufacturers, however, complained that “customers continue to cut orders with short notice, causing a ripple effect throughout lower-tier suppliers.” Government data last week showed manufacturing contracted at a 4.3% annualized rate in the first quarter, with most of the decline coming from long-lasting manufactured goods.
Declining goods prices accounted for much of the unchanged reading in monthly inflation in May, and the decrease in input prices last month bodes well for the continued disinflationary trend in the broader economy.