There are worrisome indications that the aggressive monetary tightening put in place by the U.S. Federal Reserve to rein in rising inflation is cooling off U.S. manufacturing in the process.
U.S. manufacturing slowed down more than was expected in June with new orders contracting for the first time since the start of the pandemic two years ago.
The Institute for Supply Management (ISM) survey also showed a gauge of factory employment contracting for a second straight month, though an “overwhelming majority” of companies indicated they were hiring.
The slowdown in manufacturing followed moderate consumer spending growth in May along with weak housing starts, building permits and factory production, which left some economists anticipating that the economy contracted again in the second quarter following a slump in gross domestic product in the first three months of the year, according to a report by Yahoo Finance. Another decline in GDP would not necessarily indicate a recession unless the U.S. economy suffers deep job losses.
The ISM survey’s index of national factory activity slumped to 53.0 last month, which was its lowest reading since June 2020, when the sector was rebounding from a COVID-19 slump. That followed a reading of 56.1 in May. The index would need to decline to 43.1 to signal a recession.
A reading above 50 indicates expansion in manufacturing, which accounts for 11.8% of the U.S. economy. Some of the moderation in activity reflects a shift in spending back to services from goods.
All of the six largest manufacturing industries – computer and electronic products, machinery, transportation equipment, petroleum and coal products, food, and chemical products — registered moderate-to-strong growth.
