Key facts
- US manufacturing activity increased in June, with the flash PMI rising to 55.7.
- New orders surged to a four-year high, driven by businesses preemptively ordering to avoid shortages and price hikes.
- Factory employment fell to its lowest level since May 2020, reaching a six-year low excluding the pandemic period.
- Inflationary pressures eased slightly at the factory gate, but input and output prices remained elevated.
- The Federal Reserve maintained its interest rate but signaled potential hikes later in the year.
U.S. manufacturing activity expanded for a fourth consecutive month in June, reaching its highest level since May 2022, according to S&P Global's flash Purchasing Managers' Index (PMI). The sector's growth was propelled by a significant surge in new orders, with businesses preemptively placing orders to mitigate anticipated shortages and price increases linked to the ongoing Middle East conflict. This proactive ordering strategy contributed to the new orders index reaching a more than four-year high and the stock purchases gauge hitting a 13-month peak.
Despite the robust demand, factory employment experienced a sharp decline, falling to its lowest level since May 2020 and marking a six-year low when excluding the pandemic period. This contraction in jobs was attributed to rising operating costs, particularly for raw materials, and concerns over the sustainability of the current demand upturn. The survey's measure of manufacturing employment dropped to 47.0, indicating contraction.
Inflationary pressures at the factory gate remained elevated, although they eased slightly from May's levels. The index for prices paid by factories for inputs retreated to 71.2, and the output prices index eased to 61.0. These figures suggest that while the pace of cost increases slowed, manufacturers continued to pass on higher costs to consumers.
The broader S&P Global's flash U.S. Composite PMI Output Index, which encompasses both manufacturing and services sectors, also rose to 52.2 in June, up from 51.5 in May. The services sector saw a modest increase, partly supported by the FIFA World Cup tournament. The Federal Reserve, meanwhile, held its benchmark interest rate steady but indicated that policymakers anticipate further rate hikes this year amid persistent inflation concerns.
Separately, Japan's factory activity also accelerated in June, with its PMI rising to 54.9, driven by a surge in new orders. However, similar to the U.S., Japan's manufacturers faced persistent cost pressures, though employment growth in its manufacturing sector reached an over-eight-year high.