Economic activity in the manufacturing sector contracted faster in June as optimism fades about the second half of 2023, according to the Institute for Supply Management (ISM). June was the eighth consecutive month that the activity moderated.
The ISM released Monday (July 3) the June Manufacturing ISM Report on Business that shows the purchasing managers’ index (PMI) fell by 0.9 percentage points to 46% in June from May. A PMI below 50% indicates manufacturing sector activity is contracting.
According to the report, new orders, production, employment and backlogs declined while supplier deliveries increased. Raw materials inventories fell, and customers’ inventories were too low. Prices decreased. Exports and imports fell.
“The U.S. manufacturing sector shrank again, with the Manufacturing PMI losing ground compared to the previous month, indicating a faster rate of contraction,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “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 noted “a potential bright spot” was the customers’ inventories index that fell into ‘too low’ territory, and this is a positive for future production. Meanwhile, panelists’ companies reduced production and started to increase layoffs from previous months’ levels amid mixed sentiment as to when significant growth will return.
The following four manufacturing industries reported growth in June: printing and related support activities, nonmetallic mineral products, primary metals and transportation equipment.
“Demand remains weak, production is slowing due to lack of work and suppliers have capacity,” Fiore said. “There are signs of more employment reduction actions in the near term. Seventy-one percent of manufacturing gross domestic product (GDP) contracted in June, down from 76% in May. More industries contracted strongly; however, as the share of manufacturing GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 44% in June, compared to 31% in May.”
In the June report, respondents reported mixed demand and sales.
A respondent in the computer and electronic products industry said, “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.”
In the chemical products industry, a respondent said, “customer orders have definitely slowed down. Our company thought the second half of 2023 would be better than the first half, but this doesn’t seem to be the case.”
A respondent in the transportation equipment industry said, “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.”
A respondent in the machinery industry said, “orders and business are steady with a healthy backlog, but new prospective orders seem to be getting pushed back into 2024.”
In the fabricated metal products industry, a respondent said demand is stabilizing in North America but looks to be slowing in Europe.
“Here we are almost halfway through the year, and while things are challenging, we may be doing all right,” said a respondent in the nonmetallic mineral products industry.
A paper products industry respondent said, “input costs for materials continue to decline. Demand is trending to about 2019 levels, accounting for inflation. The COVID-driven demand has moderated.”
In the primary metals industry, a respondent noted “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.”