The manufacturing sector in the US shrank for a third straight month in June and a measure of prices paid by factories for inputs fell to a six-month low amid weak demand for goods, suggesting that inflation may continue to ease.
The Institute for Supply Management (ISM) said on Monday that the manufacturing PMI fell 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.
Economists interviewed by Reuters had forecast the PMI rising to 49.1. The manufacturing sector is being pressured by higher interest rates and weaker demand for goods.
Government data last week showed the manufacturing sector shrank at an annual rate of 4.3% in the first quarter, with most of the decline coming from goods produced over long periods of time.
The Federal Reserve has kept the benchmark overnight interest rate in the current range of 5.25%-5.50% since July last year. Financial markets expect the US central bank to begin an easing cycle in September, although policymakers have recently taken a more hawkish view. The Fed has raised the key rate by 525 basis points since 2022 to tame inflation.
The new orders sub-index in the ISM survey rose to a weak reading of 49.3 from 45.4 in May. Output at factories fell for the first time since February. The production sub-index fell to 48.5 from 50.2 in May.
Against a backdrop of weak orders, factory inflation was much cooler last month. A survey measure of prices paid by manufacturers fell to 52.1, the lowest reading since December, from 57.0 in May.
Falling commodity prices contributed to an unchanged monthly inflation reading in May. Last month's decline in input prices bodes well for the continuing disinflationary trend in the wider economy.
A survey measure of supplier shipments rose to 49.8 from 48.9 in May. A reading below 50 indicates faster delivery.
Factory employment fell after rising briefly in May. Factories reduce the number of workers through layoffs, downsizing and hiring freezes.
The overall labor market is gradually slowing. The government is expected to report on Friday that nonfarm payrolls rose by 195,000 jobs in June after rising by 272,000 in May, according to a Reuters poll of economists. Unemployment is expected to be unchanged at 4.0%.
