Manufacturing PMI Shows Increase of 0.5 Points, Settling at 49% in June's Report by ISM
The Institute for Supply Management (ISM) has released its latest Manufacturing PMI report, revealing a mixed picture for the sector in June. Despite some positive signs, concerns over tariff volatility continue to cast a shadow over the industry.
The ISM Manufacturing PMI registered 49% in June, indicating a contraction that slowed slightly compared to May's reading of 48.5%. Two out of the five subindexes that directly factor into the PMI were in expansion territory, with the supplier deliveries index and the production index both showing growth. However, the new orders index contracted at a faster rate, falling to 46.4%, and the employment index dropped further into contraction.
Susan Spence, chair of the ISM's manufacturing business survey committee, stated that the production index grew 4.9 points to 50.3% in June. Despite this growth, companies seem to be treading cautiously, as indicated by the mixed indicators regarding output.
One of the key concerns highlighted in the survey is the impact of tariffs on inventory management and pricing strategies. Businesses are "shrinking inventories" as they navigate the uncertainty of tariffs, which have led to a volatile supply chain environment. Companies are also "reassessing pricing strategies," suggesting potential consumer price increases by late 2025 as the buffer from pre-tariff inventories nears exhaustion.
Tariffs have also created complexities in global trade, leading to sourcing disruptions and compliance challenges across various sectors, including electronics, steel, and textiles. The unpredictability of tariffs has forced companies to develop multiple contingency plans to manage ongoing supply chain risks.
Another concern is the potential for inflationary pressures. Despite a current delay in tariff-driven inflation, the expectation is that consumer prices may rise as the impact of tariffs becomes more pronounced over time.
A respondent in the machinery sector reported that tariffs have halted sales globally and domestically, causing orders to collapse. However, nine industries reported growth in June: Apparel, leather & allied products, Petroleum & coal products, Nonmetallic mineral products, Miscellaneous manufacturing, Furniture & related products, Computer & electronic products, Machinery, Food, beverage & tobacco products, Electrical equipment, appliances & components.
Despite these challenges, the ISM report shows that four out of the six largest manufacturing industries expanded in June, compared to two in May. This includes the computer & electronic products, machinery, and food, beverage & tobacco products industries.
The survey continues to reflect major concerns and challenges related to tariff volatility, with respondents expressing ongoing uncertainties about the long-term effects of tariffs on their businesses. As the manufacturing sector navigates these challenges, the ISM will continue to monitor the situation and provide updates on the industry's performance.
The financial implications of tariffs are significant, as companies are adjusting their inventory management strategies and potentially reassessing pricing strategies due to the uncertainty caused by tariffs. The volatility in the industry, fueled by tariffs, has created complexities in global trade and poses a potential risk for inflationary pressures in the future.
