Manufacturing sentiment fell into contraction in June after only three months of barely growing, the Institute for Supply Management reported on Monday. As the Federal Reserve continues to hold interest rates at an elevated level, demand for manufacturing goods has been dampened for most of the year.
The manufacturing index slid to 48.5 from 48.7, the lowest since February. Generally, over a period of time, if the index is above 48.7, it indicates overall expansion and vice versa.
On the other hand, the subindexes indicate expansion if they are above 50. A majority of the survey’s subindexes registered contraction in June. Most important was employment, which showed another decline after briefly rebounding in May, suggesting a weaker month of job creation for the sector.
Production, new orders and inventories also declined in June, a sign of declining sentiment over both supply and demand.
The bright spot, and what the Fed is prioritizing, was the inflation indicator—the prices paid subindex—which posted the smallest increase in six months, alleviating some of the concern that goods inflation might pick up this year.
Read more of RSM’s insights on manufacturing, the economy and the middle market.
It is hard to find any reason to expect that demand for manufacturing goods will improve unless the Fed reduces rates two to three times this year as we think it should. The economy will only continue to cool, putting more pressure on spending demand.
