There were two important U.S. manufacturing reports released this morning. First, the purchasing managers' index (PMI) from IHS Markit ended June at 55.4. That is down from 56.4 in May but still enough to result in the best quarterly pace of expansion in manufacturing activity in almost four years. Under the hood, output growth softened last month but overall remained at a historically strong level. Surveyed manufacturers attributed this to “robust client demand and favorable market conditions.” However, new business from abroad contracted for the first time since July 2017 due to “weaker foreign client demand following recent tariff announcements.”
As for inflation, input costs rose at the slowest rate in four months, while factory gate prices increased at the second-fastest pace since June 2011, together suggesting that higher costs are being partly passed onto clients. Chris Williamson, Markit’s chief business economist, added that “Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays – which hit the highest on record, exacerbating existing tight supply conditions.” More encouraging was the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, which ended June at 60.2. That is significantly better than expected and the highest headline reading since February. Measures of production and inventories improved last month, while new orders and employment contracted. Comments from surveyed managers were mixed, with several complaints about U.S. trade policy uncertainty.
Sources: Econoday, IHS Markit, ISMPost author: Charles Couch