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In June, the U.S. manufacturing sector contracted for the fourth consecutive month but at a slightly slower pace than the prior month, with the ISM Manufacturing^® PMI increasing to 49.0% from 48.5% in May. Demand indicators were mixed in June. The New Orders and Backlog of Orders Indexes continued to contract and at a faster pace, falling to 46.4% and 44.3%, respectively. Meanwhile, the New Export Orders and Imports Indexes contracted at a slower pace, rising to 46.3% and 47.4%, respectively. Inventories (49.2%) contracted but at a slower pace, as companies completed pull-forward deliveries ahead of increased tariffs. On the other hand, the Production Index returned to expansion territory, rising from 45.4% to 50.3%.

The New Orders Index contracted for the fifth consecutive month and at a slightly faster pace than the prior month, a 1.2 percentage point decline from May. The index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022. Of the six-largest manufacturing sectors, three—petroleum and coal products; food, beverage and tobacco products; and computer and electronic products—reported an increase in new orders. Respondents noted weakening demand, with the top issue in negotiations between buyers and sellers being which party will pay the tariff costs.

The New Export Orders Index contracted for a fourth consecutive month but at a slower pace, 6.2 percentage points higher than May. After the index contracted at the sharpest pace since the pandemic in May, the slower contraction could be an indication that customers are building back some of their inventory that was lost in recent months after increased tariffs were applied. Meanwhile, the Imports Index contracted for a third consecutive month but at a much slower rate, surging 7.5 percentage points to 47.4% in June, gaining back its loss from May. Imports continue to contract as tariff pricing results in lower demand compared to prior months.

The Employment Index contracted for the fifth consecutive month and at a faster pace than the prior month, a 1.8 percentage point drop from May to 45%. Of the six-largest manufacturing sectors, two—petroleum and coal products; and machinery—reported increased employment. Companies continued to reduce headcounts through layoffs, attrition and hiring freezes, while opting for layoffs at an accelerating pace due to uncertainty around future demand.

The Prices Index rose 0.3 percentage points to 69.7%, indicating prices for raw materials increased for the ninth straight month in June, driven by the dramatic rise in steel and aluminum prices impacting the entire supply chain, as well as the broad 10% tariff applied to imported goods. Nearly 46% of companies reported paying higher prices, up slightly from 45.1% in May and still up dramatically from 21% in January.