The US manufacturing sector continued to expand last month, though the pace of growth moderated as higher raw material costs kept input inflation elevated, two separate surveys showed Wednesday.
The Institute for Supply Management's purchasing managers' index decreased to 53.3 in June from 54 in May, below the 53.9 consensus estimate in a survey compiled by Bloomberg. Readings above 50 indicate expansion.
The ISM survey indicates "momentum in the manufacturing sector is intact despite geopolitical risk, energy price volatility and tariffs," Thomas Simons, Jefferies chief US economist, said in a note. "The outlook for manufacturing is likely to remain uneven. We expect that demand will pick up throughout the year as AI-related infrastructure builds continue, and as defense capital goods orders start to come in from international partners and from the US military to replenish stocks of munitions used in Iran."
The new orders index fell to 56 from 56.8, while production declined to 52.2 from 54.3, the ISM data showed. The employment measure increased to 49.7 from 48.6, remaining in contraction for the 33rd straight month. The prices gauge fell to 73 from 82.1.
"Tariffs and other uncertainties will continue to hamper other sectors of the manufacturing economy that are unrelated," Simons said. "The net effect on the manufacturing economy is likely to be positive, but there is a great degree of heterogeneity within it."
Separately, S&P Global (SPGI) said its manufacturing PMI fell to 53.9 in June from 55.1 in May. Growth for new orders and output slowed while remaining at "historically elevated" levels, and higher raw material costs continued to drive an increase in input inflation, though trailing the recent high in May.
"US manufacturers reported a further marked improvement in growth of output and order books in June extending the growth spurt that has been reported since the outbreak of the war in the Middle East," said Chris Williamson, S&P Global Market Intelligence chief business economist. "Employment was nevertheless cut sharply as firms often sought to offset the rising cost of energy and raw materials."
Growth in input costs was driven by tariffs and higher raw material prices, though the rate of inflation eased from May's recent peak, S&P said.
"Supply chain delays and upward price pressures continued to be widely reported, albeit moderating thanks to recent news of an improving situation in the Middle East," Williamson said. "However, despite the recent drop in energy prices and brighter outlook for shipping, business confidence has fallen sharply, in part reflecting concerns that an end to war-related inventory building could start to act as a drag on sales."