U.S. Manufacturing Expansion Slows in June, Price Pressures Ease

The Institute for Supply Management (ISM) Manufacturing Index registered 53.3 in June, a decrease from the previous month and falling short of the consensus forecast of 53.9. While indicating a slightly slower pace of growth, this figure nonetheless marks the sixth consecutive month of expansion for the manufacturing sector, with any reading above 50 signifying growth.

Key measures within the index presented a mixed picture. The new orders index declined to 56.0 from 56.8, and the production index fell to 52.2 from 54.3. Both, however, remain firmly in expansion territory. The employment index saw a modest increase to 49.7 from 48.6, though it still indicates contraction. Supplier deliveries softened to 57.4 from 60.6.

A notable development in the June report was the decline in the prices paid index, which dropped to 73.0 from 82.1 in May. This suggests an easing of inflationary pressures within manufacturing, potentially influenced by recent geopolitical developments, such as discussions surrounding a U.S.-Iran peace agreement. A survey comment from the Petroleum & Coal Products category indicated expectations of a return to earlier pricing structures, linking previous price increases to the conflict rather than regular market dynamics.

Despite the overall slowdown in the expansion rate, the manufacturing sector continues to benefit from ongoing trends like the reshoring of production, advancements in artificial intelligence (AI), and favorable business tax incentives designed to encourage domestic capital expenditure. Although new orders and production saw declines, their current levels above 50 underscore continued growth. Order backlogs, which had been a concern in previous years, have shown consistent growth each month in 2026, a positive sign for manufacturers. The employment picture, while still showing overall contraction, is exhibiting potential signs of improvement, with a greater number of manufacturing categories reporting employment growth in June compared to contraction.

In other economic data released, construction spending saw a 0.1% increase in May, driven by a surge in homebuilding that offset a decline in manufacturing construction. Private payrolls, as measured by ADP, rose by 98,000 in June, below the anticipated 120,000. Economists are forecasting a nonfarm payroll gain of 70,000 in the upcoming official report, with the unemployment rate holding steady at 4.3%. In the housing market, both the FHFA index and the national Case-Shiller index experienced a 0.1% decline in April, though they remain up 2.0% and 0.8% respectively over the past year.

Key terms:

1. ISM Manufacturing Index: A monthly economic indicator based on a survey of purchasing managers in the manufacturing sector, with a reading above 50 indicating expansion and below 50 indicating contraction.

2. New Orders Index: A component of the ISM Manufacturing Index that measures the rate of new orders received by manufacturing companies, serving as an indicator of future production.

3. Prices Paid Index: A component of the ISM Manufacturing Index that tracks the prices manufacturers pay for raw materials and other inputs, providing insight into inflationary pressures.