The US manufacturing sector contracted for a third consecutive month in June, with the Institute for Supply Management (ISM) reporting a Purchasing Managers' Index (PMI) of 48.5 percent, down 0.2 percentage points from May. This marks the 19th contraction in the manufacturing sector over the last 20 months. Weak demand and output were cited as reasons for the contraction, with companies demonstrating an unwillingness to invest in capital and inventory due to current monetary policy and other conditions [80c3e0f8] [7561d97a].
Despite the overall contraction, there were some positive signs in the ISM report. The new future orders sub-index rose to 49.3 in June from 45.4 in April, suggesting a potential improvement in future demand. However, the production sub-index fell to 48.5 from 50.2 in May, indicating a decrease in factory output. The factory employment index also declined, with factories responding to the downturn by reducing their workforce through layoffs and hiring freezes [7561d97a].
The weak demand for goods is reflected in the prices paid by factories for inputs, which dropped to a six-month low of 52.1. This suggests that inflation could continue to subside. The subdued demand and declining prices are leading companies to be hesitant about investing in capital and inventory [7561d97a].
In addition to the challenges in the manufacturing sector, the US job market is also showing signs of cooling. The number of job openings in the US declined in April to 8.06 million, the lowest point in three years. The ADP non-farm employment report showed that the US private sector added 152k jobs in May, down from 188k in the previous month. Unemployment claims rose by 8,000 to 229,000 for the week ending June 1st. Nonfarm payroll employment increased by 272,000 jobs in May, exceeding expectations. However, the overall labor market is gradually cooling, with nonfarm payrolls expected to increase by 195,000 jobs in June [7561d97a] [e1b3bada].
The global economic outlook is also impacting central banks' decisions. The European Central Bank (ECB) and the Bank of Canada have both cut interest rates, reflecting concerns about the global economic outlook. The Australian economy grew at a slower pace of 0.1 percent in Q4 2023, indicating a deceleration in economic growth compared to the previous quarter [e1b3bada].
Overall, the US manufacturing sector continues to face weakness, with low input prices and decreased demand. The labor market is also showing signs of cooling, with a decline in job openings and slower job growth. Central banks around the world, including the Federal Reserve, are taking a more accommodative stance to support economic growth amidst global economic challenges [7561d97a] [e1b3bada] [80c3e0f8].