U.S. Manufacturing Activity Eases from Four-Year High

• U.S. manufacturing activity slowed in June after reaching a four-year high in May, as some of the boost from businesses front-loading orders to avoid shortages and higher prices caused by the Middle East conflict began to fade. The Institute for Supply Management (ISM) Manufacturing PMI eased to 53.3 from 54.0, but remained above the 50-point threshold, indicating continued expansion.
• Despite the moderation, manufacturing remained supported by the artificial intelligence (AI) investment boom, with the sector expanding for a sixth consecutive month. Fourteen industries reported growth, including electrical equipment, machinery, primary metals, and computer and electronic products.
• According to the ISM, new orders slowed only marginally, while factory inventories rebounded after a prolonged period of contraction. Supply chains also improved somewhat following the U.S.-Iran ceasefire, with supplier delivery times easing from May levels.
• Manufacturers continued to report elevated input costs, although the pace of price increases moderated as lower energy prices reduced some raw material costs.  The ISM's prices paid index fell to 73.0 from 82.1, while shortages persisted for products such as semiconductors, electronic components and memory chips.
• References to the Iran war and pricing volatility declined compared with May, although respondents said the conflict, tariff uncertainty and concerns over the reopening of the Strait of Hormuz continued to weigh on costs and business planning. Manufacturers of food, beverage and tobacco products said input costs remained elevated, while transportation equipment producers warned tariffs continued to pressure profitability and demand.
• Factory employment remained subdued, but hiring intentions improved. About 64% of respondents reported they were hiring, up from 50% in May, while economists expect the June employment report to show 110,000 jobs added and the unemployment rate remaining at 4.3%.
• While U.S. manufacturing is still expanding, the momentum is cooling as conflict-related front-loading fades. At the same time, elevated input prices, tariff uncertainty, and shortages in semiconductors and electronic components could keep cost pressures high, reinforcing the Fed’s cautious stance on inflation.

(Source: Reuters)