U.S. Manufacturing Growth Slows Marginally in June to 53.3, Prices Paid Drop Significantly

The Institute for Supply Management (ISM) Manufacturing Index edged down to 53.3 in June, falling short of the consensus forecast of 53.9. Despite this marginal dip, the reading signifies a sixth consecutive month of expansion for the manufacturing sector, an encouraging sign for an industry that has contended with significant headwinds over the past three years. Readings above 50 indicate expansion, while those below 50 suggest contraction.

Key components of the index presented a mixed picture. The new orders index registered 56.0, a slight decrease from 56.8 in May, yet it remains firmly in expansionary territory. Similarly, the production index declined to 52.2 from 54.3. The employment index, while still in contractionary territory at 49.7, showed an improvement from 48.6 in May. This marks the 33rd consecutive month the employment index has been below 50, but a noteworthy shift occurred as more manufacturing categories (nine) reported employment growth in June compared to contraction (three), potentially signaling a turnaround in hiring trends. Supplier deliveries also saw a decline, falling to 57.4 from 60.6.

A significant development in the June report was the notable drop in the prices paid index, which decreased to 73.0 from 82.1 in May. This decline is viewed positively, with discussions surrounding a potential U.S.-Iran peace agreement anticipated to further depress energy prices. A survey comment from the Petroleum & Coal Products sector explicitly mentioned expectations to revert to February pricing structures, citing the war as the primary driver of recent oil price increases rather than fundamental market forces.

The continued expansion in manufacturing activity suggests that factors such as the reshoring of production, the ongoing buildout of artificial intelligence infrastructure, and favorable business tax incentives, including bonus depreciation for domestic capital expenditures, are providing substantial support to the industry. Although new orders had shown weakness prior to this year, backlogs have consistently grown each month in 2026 after over three years of contraction, indicating improving demand. However, manufacturers have remained cautious about increasing their workforce despite this improved demand.

In related economic news, construction spending saw a modest increase of 0.1% in May, largely propelled by a surge in homebuilding that offset a reduction in manufacturing construction. On the employment front, private payrolls, as measured by ADP, increased by 98,000 in June, below the consensus estimate of 120,000. Economists are forecasting a nonfarm payroll gain of 70,000 in the official report, with the unemployment rate expected to hold steady at 4.3%. Housing data indicated that both the FHFA index and the national Case-Shiller index declined by 0.1% 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 derived from a survey of purchasing managers in the manufacturing sector, reflecting the health and outlook of the industry. A reading above 50 signifies expansion, while a reading below 50 indicates contraction.

2. **New Orders Index**: A component of the ISM Manufacturing Index that measures the volume of new orders received by manufacturing companies in a given month, serving as a leading 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 insights into inflationary pressures within the supply chain.