Economic activity in the manufacturing sector contracted in June for the eighth consecutive month following a 28-month period of growth, according to the latest Manufacturing ISM Report on Business from the Institute for Supply Management.

“The June Manufacturing PMI registered 46%, 0.9 percentage point lower than the 46.9% recorded in May. Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion,” Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management’s manufacturing business survey committee, said. “The New Orders Index remained in contraction territory at 45.6%, three percentage points higher than the figure of 42.6% recorded in May. The Production Index reading of 46.7% is a 4.4-percentage point decrease compared to May’s figure of 51.1%. The Prices Index registered 41.8%, down 2.4 percentage points compared to the May figure of 44.2%. The Backlog of Orders Index registered 38.7%, 1.2 percentage points higher than the May reading of 37.5%. The Employment Index dropped into contraction, registering 48.1%, down 3.3 percentage points from May’s reading of 51.4%.

“The Supplier Deliveries Index figure of 45.7% is 2.2 percentage points higher than the 43.5% recorded in May. This figure, along with the previous seven, is the Supplier Deliveries Index’s lowest reading since March 2009 (43.2%). Supplier Deliveries is the only ISM Report on Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.

“The Inventories Index dropped 1.8 percentage points to 44%; the May reading was 45.8%. The New Export Orders Index reading of 47.3% is 2.7 percentage points lower than May’s figure of 50%. The Imports Index remained in contraction territory, registering 49.3%, two percentage points higher than the 47.3 percent reported in May.

“The U.S. manufacturing sector shrank again, with the Manufacturing PMI losing ground compared to the previous month, indicating a faster rate of contraction. The June composite index reading reflects companies continuing to manage outputs down as softness continues and optimism about the second half of 2023 weakens.

“Demand eased again, with the (1) New Orders Index contracting but at a slower rate, (2) New Export Orders Index moving into contraction and (3) Backlog of Orders Index remaining at a level not seen since early in the coronavirus pandemic (May 2020). A potential bright spot: The Customers’ Inventories Index dropped into ‘too low’ territory, a positive for future production. Output/Consumption (measured by the Production and Employment indexes) was negative, with a combined 7.7-percentage point downward impact on the Manufacturing PMI calculation. Panelists’ companies reduced production and began using layoffs to manage head counts to a greater extent than in prior months amid mixed sentiment about when significant growth will return. Inputs — defined as supplier deliveries, inventories, prices and imports — continue to accommodate future demand growth. The Supplier Deliveries Index continued to indicate faster deliveries, and the Inventories Index dropped further into contraction as panelists’ companies try to mitigate inventories exposure. The Prices Index fell further into ‘decreasing’ territory. Manufacturing lead times improved again but remain at elevated levels. Of the six biggest manufacturing industries, only one — transportation equipment — registered growth in June.

“Demand remains weak, production is slowing due to lack of work and suppliers have capacity. There are signs of more employment reduction actions in the near term. Seventy-one percent of manufacturing gross domestic product (GDP) contracted in June, down from 76% in May. More industries contracted strongly, however, as the share of manufacturing GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 44% in June, compared to 31% in May.”