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ISM Manufacturing Index falls in June to two-year low of 51.7

The ISM Manufacturing Index has its slowest growth for three straight months.

US flags Source: Bloomberg

The ISM (Institute for Supply Management) Manufacturing Index fell in June from 52.1 to 51.7. The index that measures manufacturing activity grew at its slowest rate since October 2016.

US-China trade tensions weigh on US manufacturing

The ISM surveyed manufacturing managers about the state of the industry. Many survey participants noted that the US-China trade conflict had a major impact on manufacturing and led to a decline in new orders.

‘China tariffs and pending Mexico tariffs are wreaking havoc with supply chains and costs,’ said a computer and electronics company in the June survey.

‘The situation is crazy, driving a huge amount of work [and] costs, as well as potential supply disruptions,’ added the respondent.

Another participant in the survey also said that the tariffs placed on Chinese imports had a negative impact on manufacturers.

‘Tariffs continue to adversely impact decisions and forecasting. Our increasing fear is that current trends will weaken the global economy, influencing our ability to grow in 2020 and beyond,’ said the respondent.

What do financial experts say about US manufacturing?

Chris Rupkey, chief economist at MUFG, agrees with the survey participants that US manufacturing is suffering from trade volatility between the US and China.

‘Manufacturing is clearly taking it on the chin from the rising trade uncertainty,’ said Rupkey.

While there is negative news about US manufacturing, there is still reason for optimism. Timothy Fiore, chair of the ISM manufacturing survey, noted that manufacturers ‘registered a faster rise in production in June.’

The ISM Manufacturing Index’s reading of 51.7 also grew faster than Wall Street’s expected 51.3. Any reading above 50 in the index shows growth in the industry.

Jim Baird, chief investment officer at Plante Moran Financial Advisors, said that hiring in the manufacturing industry grew in June at a high rate despite an apparent slowdown in the global economy.

‘Against the backdrop of a slower economy and heightened uncertainty on the trade front, the fact that manufacturers are not only hiring but doing so at a faster pace suggests a degree of confidence in the business outlook,’ said Baird.

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