U.S. factory activity eased from its four-year high in June as the manufacturing sector expanded at a slower pace, new industry data released on July 1 show.
The widely watched Manufacturing Purchasing Managers’ Index (PMI)—a monthly survey to determine the sector’s prevailing economic direction—dipped to 53.3, from 54 in May, according to the Institute for Supply Management. This represented the sixth consecutive month of growth—a PMI above 47.5 percent indicates an expanding economy.
Output and new orders continued to expand but slowed from the previous month, as frontrunning by U.S. firms may have run its course.
Thirty-four percent of the survey’s comments were positive, while 66 percent were negative. Price volatility, the war in Iran, and tariffs were the most mentioned developments.
“The conflict in Iran has impacted pricing in every category of raw materials. Especially, items that have a heavy concentration of oil in the components like our adhesives,” a representative from the chemical products industry said in the survey.
Manufacturing employment picked up last month. While the broader index remained in contraction, the rate of job losses slowed, suggesting tentative stabilization.
Despite the modest improvement in employment, the latest figures could pose risks to the June jobs report, says Jeffrey Roach, chief economist at LPL Financial.
“Manufacturing demand improved at the margin in June but the rise in demand didn’t translate into an improvement into the employment situation. We see downside risk for tomorrow’s payroll report,” Roach said in a note emailed to The Epoch Times.
The Bureau of Labor Statistics will release the June employment numbers, and economists pencil in a reading of 110,000. The unemployment rate is also expected to hold steady at 4.3 percent.
Input Prices
Price pressures also slowed sharply in June, decelerating from 82.1 percent to 73 percent.
A comment from a representative in the petroleum and coal sector indicated that prices could return to February levels.
“With the potential ending of the Iran war, management is expecting us to go back to February pricing structures and plans since the increase in oil prices was driven by the war and not regular market influences,” the respondent said in the firm’s survey.
Oil and gas prices have come down substantially over the past month.
A barrel of West Texas Intermediate—the U.S. benchmark for oil prices—declined to below $69. The national average for a gallon of gasoline has fallen below $3.85.
President Donald Trump told reporters on July 1 that U.S. peace talks with Iranian mediators in Qatar are going well. U.S. special envoy Steve Witkoff and Trump’s son-in-law Jared Kushner are in Doha.
“As far as things are going, the denuclearization of Iran is moving along well,” he said. “They’ve had very good meetings, and we’ll see.”
At the same time, prices could remain elevated over the next year as artificial intelligence (AI) investments drive up the costs of various goods, including electronics and semiconductors. This could also weigh on company margins, warns Jeff Buchbinder, chief equity strategist at LPL Financial.
“Higher memory chip prices and energy and other bottlenecks in the Strait of Hormuz could erode company margins, particularly in the technology sector,” he said in an emailed note to The Epoch Times
Construction Data
Meanwhile, new Census Bureau data show U.S. construction spending rose at a smaller-than-expected pace of 0.1 percent in May, following a downwardly revised 0.3 percent jump in April. Declines were led by the 1.4 percent drop in manufacturing.
“Construction spending on data centers was not large enough to reverse the trend in nonresidential construction,” Roach said.
“Single-family residential construction spending rose for the third consecutive month but is still weighed down by sluggish demand.”
