U.S. manufacturing contracted for a third straight month in June as demand remained muted while an index measuring prices paid by factories dropped to a six-month low, suggesting inflation could be easing.
The U.S. factory index – the PMI — declined by 0.2 percent to 48.5 as the first half of 2024 closed, according to the Institute for Supply Management. Any number below 50.0 indicates contraction. Demand remained in contraction in June but improved by 3.9 percent in to reach a level of 49.3. The prices index dropped 4.9 percent to a level of 52.1.
“We are still stable – there’s not a lot of movement from May – and there’s positive movement on new orders and the prices index coming down,” said Tim Fiore, chair of the ISM’s manufacturing business survey committee. “But there’s a cautionary note in production, which declined for the second time and that’s alarming because of a lack of new orders and backlog continuing to decline.”
Production decreased by 1.7 percent to 48.5 in June, and backlog registered 41.7 percent, down 0.7 percent from May. Panelists’ companies reduced production levels month over month as headcount reductions continued in June. Employment declined by 1.8 percent to register 49.3.
“While orders are still steady, inventory from the previous month is enough to satisfy current- and near-term commitments,” a computer and electronics executive told the ISM. Overall, factory inventories declined 2.5 percent from May to a reading of 45.4.
Although the ISM’s computer and electronics data show demand, orders and employment improving in June, data from the electronics trade group ECIA showed sales of components dropping from May.
ECIA’s overall component index fell by 13.4 points in June to 98.9 — below the 100-point threshold between contraction and growth. “Market sentiment for the first half of 2024 has essentially been reset to where it started the year,” said ECIA chief analyst Dale Ford in a statement.
However, the ECIA’s overall end-market index registered 103.1. Both the ECIA and ISM are calling for a stronger second half of 2024.
“Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory due to current monetary policy and other conditions,” said the ISM’s Fiore. “Production execution was down compared to the previous month, likely causing revenue declines, putting pressure on profitability.”
Sectors that rely on capex spending, such as metals, machinery and equipment, are facing more pressure than other manufacturing businesses, he added. If sales don’t improve, a significant reduction in headcount can be expected, further hurting the economy.
“Sales backlog is decreasing,” an executive in machinery told the ISM. “We have furloughed a portion of our workforce as a result.”
Few supply chain headwinds
Supply chain constraints have eased, both the ECIA and ISM noted, well-positioning factories for an uptick in demand. Inputs – measured by supplier deliveries, inventories, prices and imports — continue to accommodate growth, Fiore said.
Siource: ECIA
Supplier deliveries remain in “faster” territory, registering 49.8, 0.9 percent higher than the reading of 48.9 in May. (Supplier deliveries is the only ISM index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) Factory inventories registered 45.4, down 2.5 percent from May’s 47.9 level, and will eventually have to be replenished.
“Suppliers continue to have capacity, with lead times improving and shortages not as severe,” said Fiore.
Still, sixty-two percent of manufacturing gross domestic product (GDP) contracted in June, up from 55 percent in May, reported the ISM. More concerning, said Fiore, the share of sector GDP registering a PMI at or below 45 percent — a good barometer of overall manufacturing weakness — was 14 percent in June, 10 points higher than the 4 percent reported in May.
“Once again, an air of uncertainty pervades the electronics and electronics components industries as the markets battle continued economic headwinds,” said the ECIA’s Ford. “Perhaps, the key question is whether the progress being achieved in the world of technology will be enough to support improvement in the electronics markets despite the troubling economic environment.”
The post Manufacturing Slump Continues; Price Pressures Ease appeared first on EPS News.
