July 1, 2026
The Institute for Supply Management’s index of conditions in the manufacturing sector fell 0.7 point in June to 53.3 after having risen 1.3 points in May. This is the sixth straight month that the manufacturing sector has been expanding following a 10-moonth period of contraction. It also is essentially at its highest level since May 2022, A level of 53.3 is associated with a GDP increase of 2.0%.
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for June will be released on Monday, July 6..
The Institute for Supply Management Chair for the Survey Committee Susan Spence said, “In June, U.S. manufacturing activity remained in expansion territory, growing at a slightly slower pace as compared to the month before. Of the five subindexes that make up the PMI®, the New Orders and Production indexes grew slower as compared to the previous month, the Supplier Deliveries Index slowed at a slower rate, and the Employment and Inventories indexes improved with the latter entering expansion territory.
“In June, 34 percent of the comments were positive and 66 percent negative, with a 1-to-1.9 ratio of positive to negative sentiment. Among negative comments, the Iran war was mentioned in 31 percent and tariffs in 17 percent; 50 percent of the panelists mentioned pricing volatility as an issue for their companies.
“In June, two of four demand indicators (New Orders and Backlog of Orders) were in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. New Export Orders returned to contraction, losing 2.1 percentage points since May.
“Regarding output, the Production Index is in expansion for the eighth month in a row, and the Employment Index increased by 1.1 percentage points but remained in contraction. Among panelists, 36 percent indicated that managing head counts remains the norm at their companies, while 64 percent are hiring — a near reversal of those numbers from the start of the year (66 percent of companies were managing staff levels in the January report).
“Finally, inputs (defined as supplier deliveries, inventories, prices, and imports) were mixed, with the Supplier Deliveries Index decreasing 3.2 percentage points, the Inventories Index entering into expansion, the Imports Index losing 0.1 percentage point but staying in expansion, and Prices Index relief coming with a 9.1-percentage point drop, a reading of 73 percent versus 82.1 percent in May.”
Comments from respondents include the following:
- “The conflict in Iran has impacted pricing in every category of raw materials. Especially, items that have a heavy concentration of oil in the components like our adhesives.” [Chemical Products]
- “Continued pressure from conflict in Middle East is resulting in a more conservative approach to capital expenditures. We are seeing an increase in consumables and services purchasing from sectors like chemical analysis, per- and polyfluoroalkyl substances (PFAS), and environmental and pharmaceutical testing.” [Computer & Electronic Products]
- “General purchasing operations are being shaped by (1) moderating but still elevated inflation, (2) higher interest rates and (3) continued policy uncertainty, particularly around tariffs and global trade. While overall economic growth remains resilient, it is slowing as consumer spending weakens under pressure from higher costs for energy and essential goods, reducing demand visibility and increasing cost sensitivity for buyers. Meanwhile, supply chains have stabilized compared to prior years but remain structurally complex, with trade policy volatility, geopolitical tensions and regulatory changes now ongoing cost drivers rather than temporary disruptions. Our organization continues balancing cost control with resilience, shifting sourcing strategies, tightening inventories and prioritizing supplier diversification and risk management.” [Computer & Electronic Products]
- “Retail electronics sales seem to have stabilized to some extent. The pause in tariff changes has been welcomed the last two months, but it’s only a matter of time before more confusion is introduced.” [Electrical Equipment, Appliances & Components]
- “Input costs remain elevated across key categories, driven largely by Middle East conflict impacts and ongoing tariff uncertainty. Supplier lead times have stretched, which is influencing our inventory strategy and sourcing decisions. We are managing exposure through diversified supplier bases and contract structures that balance cost certainty with operational flexibility.” [Food, Beverage & Tobacco Products]
- “Conditions are optimistic but not yet booming for our company, even though many others, it seems, are experiencing growth. Machinery in support of defense and semiconductor manufacturing is very strong, a bright spot for our team. Industrial and medical clients are slow to purchase, focusing more on refurbished and upgraded units versus new ones.” [Machinery]
- “Core business remains solid in the face of ongoing geopolitical uncertainty. Cautiously optimistic that a deal will be reached to reopen the Strait of Hormuz; concerned about ongoing ripple effects even when the strait reopens but situation is highly concerning if the strait remains closed. AI industry continues to have huge capacity consumption for critical electronics. Monitoring impact of U.S. defense industry needs on supplier capacity.” [Miscellaneous Manufacturing]
- “No major changes from last month. With the potential ending of the Iran war, management is expecting us to go back to February pricing structures and plans since the increase in oil prices was driven by the war and not regular market influences.” [Petroleum & Coal Products]
- “Requests from suppliers in Europe and India for ‘energy surcharges’ have stopped this past month. We’re seeing continued capacity growth in the Asia-Pacific region (excluding China), including Vietnam, Thailand and South Korea. Most suppliers are building for the longer term as geopolitical protection from all sides.” [Transportation Equipment]
- “The new Section 232 tariffs continue to destroy our profitability and demand as we have to raise prices to deal with this gigantic tax. Add the ‘incentives’ for our company to pivot to purchasing non-U.S. sourced material, and one realizes the total ineptitude of this tariff policy.” [Transportation Equipment]
The orders component declined 0.8 point in June to 56.0 after having risen 2.7 points in May. “Of the six largest manufacturing industries, four (Computer & Electronic Products; Machinery; Transportation Equipment; and Chemical Products) reported increased new orders. Demand sentiment was positive in June, with a 2.7-to-1 ratio of positive to negative comments,” says Spence.
The production component fell 2.1 points in June to 52.2 after having risen 0.9 point in May. Production has expanded in June for the 8th month in a row. “Of the six largest manufacturing industries, four (Computer & Electronic Products; Machinery; Transportation Equipment; and Chemical Products) reported increased production. Panelists had a 2-to-1 ratio of positive to negative comments regarding output,” says Spence.
The delivery performance of suppliers to manufacturing organizations dropped 3.2 points in June to 57.4 after having been unchanged in May. This is the seventh consecutive month this index has been above 50.0. A reading above 50 indicates slower deliveries which presumably means that the economy in beginning to accelerate. A reading below 50 indicates faster deliveries and is associated with slower growth in the economy. It had been hovering between 50-53 for the past year but it has broken out to the upside. “The Supplier Deliveries Index registered 57.4 percent, 3.2 percentage points lower than May’s reading of 60.6 percent. Of the six big industries, five (Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment) reported slower supplier deliveries,” says Spence
The employment index rose 1.1 points in June to 49.7 after having climbed 2.2 points in May. “The index posted its 33rd consecutive month of contraction after expanding in September 2023. Since January 2023, the Employment Index has contracted in 41 of 42 months. Of the six big manufacturing industries, three (Machinery; Transportation Equipment; and Chemical Products) reported higher levels of employment in June. The panelist comment ratio of hiring to managing/reducing head counts was 1.8 to 1 in June, nearly a reversal of the 1-to-2 ratio at the beginning a year,” says Spence
The backlog of orders fell 1.7 points in June to 50.5 after having risen 0.8 point in May. The February reading was the highest level for the backlog category since May 2022. Eight industries reporting higher backlogs in June. Six industries reported lower inventories. Four industries reported no change in backlog of orders in June. This is a positive sign for factory output in the months ahead.
Customer inventory levels fell 0.4 point in June to 42.3 after having risen 3.6 points in May. Customers’ Inventories Index remained in “too low” territory.
With an increase in both the orders and customer inventories categories the ratio of orders to inventories was unchanged in June at 1.3. The 1.3 level for this index suggests that production should climb further in the months ahead.
The prices paid component plunged by 9.1points in June to 73.0 after having declined 2.5 points in May. “The Prices Index reading is still being driven by (1) increases in steel and aluminum prices that impact the entire value chain, (2) tariffs applied to many imported goods and (3) increases in petroleum-based products as a result of the Middle East conflict. Higher prices were reported by 55.1 percent of respondents in June, down 11.2 percentage points from May’s 66.3 percent,” says Spence.
GDP is expected to climb 2.6% in the second quarter. We are also looking for GDP growth of 2.4% in 2026.
Stephen Slifer
NumberNomics
Charleston, S.C.
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