U.S. manufacturing activity rises as factory job cuts deepen

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U.S. manufacturing rises amid job cuts

Highlights

S&P Global flash manufacturing PMI rises to 55.7 in June from 55.1 in May, hitting a 25-month high and beating expectations.
Factory job cuts accelerate as the employment index drops to 47.0, its lowest reading since May 2020, despite increased manufacturing activity.
Input cost inflation remains high with the prices-paid index at 71.2, supporting forecasts for sticky inflation and possible Federal Reserve rate hikes later this year.

June PMI gains driven by early orders

According to Reuters, S&P Global reported that its flash manufacturing PMI rises to 55.7 in June from 55.1 in May, reaching its highest level since May 2022 and exceeding economists' expectations for a slight decline. Readings above 50 signal expansion, and the survey indicates manufacturers continue to benefit from businesses rebuilding inventories and placing orders early to avoid potential supply disruptions and price increases.

The manufacturing PMI has now increased for four straight months. S&P Global says new factory orders jump to their highest level in more than four years, while stock purchases climb to a 13-month high as companies move to secure supplies ahead of possible shortages tied to the conflict in the Middle East.

The broader private-sector picture also improves, with the flash services PMI rising to 51.3 from 50.7 in May and lifting the composite output index to 52.2 from 51.5. The increase in services activity is partly linked to the FIFA World Cup being jointly hosted by the U.S., Canada and Mexico.

Cost pressures cloud employment and inflation outlook

Manufacturing employment weakens sharply even as activity expands, with the survey's factory employment index falling to 47.0 from 51.6 in May, its lowest reading since May 2020. Chris Williamson, chief business economist at S&P Global Market Intelligence, says factory job cuts are running at the fastest pace since 2009 when the pandemic period is excluded, reflecting concern about whether recent demand growth can be sustained alongside rising raw material costs.

The survey links layoffs to concerns over the outlook and higher overheads, especially for raw materials. Supplier delivery times lengthen to levels last seen in August 2022, while the U.S.-Israeli war with Iran continues to strain supply chains and lift prices for oil-linked commodities, aluminum and fertilizers, even as hopes for a peace deal improve business confidence somewhat.

Input cost inflation eases only modestly, with the prices-paid measure falling to 71.2 from 75.3 in May, while output prices also slow but remain elevated at 61.0. The persistence of high price readings supports economists' expectations that inflation remains sticky and that the Federal Reserve raises interest rates later this year after keeping its benchmark rate in the 3.50% to 3.75% range last week.

WTI’s recent move reflected a fading oil risk premium as markets priced in a potential pause in U.S. sanctions on Iranian crude and signs of progress in U.S.-Iran talks, raising expectations of additional supply and steadier flows through the Strait of Hormuz. Our earlier coverage also noted that falling U.S. inventories and ongoing risks around Hormuz were keeping the downside in check, leaving the near-term outlook neutral-to-negative while prices stayed below key resistance levels.

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