US ISM Manufacturing Stays in Contraction in June as Uncertainty Over Trade Conflicts Keeps Firms on Sidelines, Leading to Weak Demand, More Layoffs

--ISM Manufacturing Index at 49.0 Vs. 48.5 in May, Consensus at 48.8

--ISM’s Spence: Production Up but Still Fragile, New Orders Falling

--Spence: Orders Unlikely to Pick Up Until Trade, Geopolitical Risks Wane

(MaceNews) – U.S. manufacturing activity was in contraction for the fourth straight month in June as the uncertainty over protectionist U.S. trade policy continued to choke new orders and prompt firms to cut more payrolls, dimming the uplifting effect of higher production, the Institute for Supply Management reported on Tuesday.

The ISM manufacturing sector purchasing managers’ index rose 0.5 percentage point to a three-month high of 49.0 in June after falling 0.2 point to a six-month low of 48.5 in May. It was just above the median economist forecast of 48.5. The PMI was in slight expansion at 50.3 in February and 50.9 in January, the first time the index had popped above the neutral line of 50 since October 2022 (50.3).

“Production levels in June, while improved, are still fragile as order books remain weak and new orders continue to decline,” Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “The findings in June suggest the deliveries continued to be strained because suppliers and panelists’ companies were haggling over who pays for applied tariffs.”

Looking ahead, she said, “Continued contraction in both the new orders and the backlog of orders indexes means that trade issues and other geopolitical tensions are still at play, and significant improvement shouldn’t be expected until those issues begin to recede.”

Regarding business sentiment, Spence told reporters that for every positive comment, there were 11 negative comments in June, which is significantly up from May, when the ratio was one to 5.2.

As for the continued contraction in employment, she said layoffs remain “the primary measure” and that the situation is getting worse as firms continue to reduce head counts through layoffs, attrition and hiring freezes. For every comment on hiring, there were 3.2 on reducing head counts, one of the widest ratios since ISM began tracking employment comments. The ratio was 1 to 1.4 in May and 1 to 1 in April.

“For the seventh month the biggest issue on a panelist mind continues to be the effect of tariffs on supply chain and cost structure,” she said. “This month that accounted for 65% of headline comments.”

Among comments from ISM member firms, a machinery maker said, “The tariff mess has utterly stopped sales globally and domestically. Everyone is on pause. Orders have collapsed.”

“Tariffs continue to cause confusion and uncertainty for long-term procurement decisions,” a company in the computer and electronic products category agreed. “The situation remains too volatile to firmly put such plans into place.”

A transport equipment maker said, “Next year’s forecast is not any better at this point. Additionally, most electric vehicle (EV) projects have been delayed or canceled, resulting in a significant amount of unutilized capital investment. EV technology launches for 2026-28 have been delayed past 2030.”

“The prices index reading continues to be driven by increases in steel and aluminum prices that impact the entire value chain, as well as the general 10% tariff applied to many imported goods,” Spence wrote in the report. “Higher prices were reported by 45.6% of panelists’ companies in June, slightly up from 45.1% in May. This share has consistently increased over the prior eight months, from a low of 12.2% in November to 49.2% in April.”

It remains uncertain whether President Trump will extend his 90-day pause on higher reciprocal tariffs on all goods entering the United States from most countries that is set to expire on July 9.

The ISM import index rebounded in June, partially recovering its cumulative loss incurred in the previous three months, probably because firms rushed to procure goods before the July 9 deadline, Spence said.

Trump initially slapped 25% tariffs on Canadian and Mexican imports to the U.S. and an additional 10% on China over illegal immigration and drug trafficking for which he blames those countries. The duties on imports from China were jacked up to 145% in April, triggering a 125% Chinese levy on some U.S. goods. But Washington and Beijing have suspended all but 10% of their tariffs for 90 days, starting on May 14. They have cancelled other retaliatory levies, lowering U.S. tariffs on Chinese imports to 30% and Chinese tariffs on U.S. imports to 10%.

Among the five subindexes that directly factor into the manufacturing PMI, the new orders index: 46.4 at a three-month low vs. 47.6 in May. It contracted for the fifth consecutive month in June after three consecutive months of expansion. The latest reading remains below the 12-month moving average (48.4). The index hasn’t indicated consistent growth since a 24-month streak of expansion that ended in May 2022.

The production index: 50.3 at a four-month high vs. 45.4. It entered expansion territory for the first time in four months in June. Prior to the first two months of 2025, the last time the index registered above 50 was in April 2024 (50.7).

The employment index: 45.0 at a three-month low vs. 46.8. It rose for the second straight month but was in contraction for the fourth straight month after a slight expansion in January (50.3) and seven straight months of contraction before that.

The supplier deliveries index (the only one that is inversed): 54.2 vs. 56.1. Delivery performance of suppliers to manufacturers was slower for a seventh straight month. The index hit the highest (the slowest deliveries) since 57.3 in June 2022. It follows a contraction (which indicates faster delivery) in November 2024, preceded by four consecutive months of slower deliveries. After a reading of 52.4 in September 2022, the index went into contraction and remained there for 20 out of 21 months, with February 2024 the exception.

The manufacturing inventories index: 49.2 vs. 46.7. The readings in April and March (53.4) were the index’s highest since December 2022 (51.4). Prior to March 2025, the last time the index was above 50 was in August 2024 (50.2).

Among other subindexes, the prices paid index: 69.7 vs. 69.4 in May, 69.8 in April. The recent figures were the highest since 78.5 recorded in June 2022, when price pressures were easing month by month. The latest reading indicates raw materials prices increased for the ninth straight month after a decrease in September 2024.

The new export index: 46.3. vs. 40.1 in May, which was the lowest since 39.5 in May 2020, when it began to pick up from the pandemic-triggered record low of 35.3 in April 2020. It contracted for the fourth month in a row in April after expanding for two consecutive months. The 6.5-point decrease in April 2025 was the largest since April 2020, when the index dropped 11.3 points.

The import index: 47.4 at a three-month high vs. 39.9 in May, when the Trump tariffs pushed the index to a 16-year low (the lowest since 38.5 recorded in May 2009). The index dropped 12.7 percentage points in three months through May