Data released on Friday showed the ISM Manufacturing PMI dropped more than expected in June to 53, the lowest level in two years. According to analysts at Wells Fargo details of the report demonstrate slower activity in the manufacturing sector, but also that supply problems continue to slowly ease.
“The ISM manufacturing index slid 3.1 points to 53.0 in June. Notably, this was still above the 50-threshold signaling expansion, but marked the lowest reading in nearly two years and is consistent with a slower pace of activity. There were multiple signs of supply constraints easing, but weakness on the demand side pulled the overall index lower as new orders tumbled.”
“New orders tend to lead growth in industrial production (IP)—ISM new orders led growth in IP heading into the 2001 and the 2007 recessions. In short, this contraction-territory print for new orders is not good news for activity in the sector and could foreshadow coming weakness in actual output. One potential offset today, however, is the fact that manufacturers still have a record amount of backlog to move through, which may help support manufacturing activity even amid a pullback in new demand.”
“The June ISM piles onto weaker consumer data received this week. Investment spending is starting to weaken, which only adds to the evidence that the U.S. economy is rapidly slowing.”
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