US manufacturing activity hits 4-year high in June; factory jobs fall to lowest since 2020

US manufacturing activity strengthened in June, beating market expectations, as businesses accelerated orders to protect themselves against possible supply disruptions and higher prices. However, factory employment declined sharply as rising operating costs weighed on hiring.

According to S&P Global’s flash Purchasing Managers’ Index (PMI), the US manufacturing PMI rose to 55.7 in June, its highest level since May 2022, compared with 55.1 in May. Economists had expected the index to ease to 54.8. A reading above 50 indicates expansion in manufacturing activity.

The sector, which contributes around 9.4 per cent to the US economy, has now expanded for four consecutive months.

The improvement in manufacturing, along with stronger services activity, lifted the S&P Global Flash US Composite PMI Output Index to 52.2 in June from 51.5 in May. The services PMI also improved to 51.3 from 50.7.

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The rise in factory activity was largely driven by companies increasing purchases and placing advance orders amid concerns over supply shortages and future price increases. New orders received by manufacturers climbed to their highest level in more than four years, while stock purchases reached a 13-month high.

However, the stronger demand failed to translate into job creation. The manufacturing employment index fell sharply to 47.0 in June from 51.6 in May, marking the weakest reading since May 2020.

S&P Global said manufacturers reduced staffing due to uncertainty over future demand and higher overhead costs, particularly rising raw material prices.

“Factory job cuts are running at the highest since 2009 if the pandemic is excluded, reflecting concerns over the sustainability of the recent upturn in demand alongside worries over the escalating cost of raw materials,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Supply chain pressures also remained elevated, with supplier delivery times worsening to their slowest level since August 2022.

Meanwhile, inflation pressures continued despite some easing in input costs. The index tracking prices paid by manufacturers fell to 71.2 in June from 75.3 in May, while factory output prices eased to 61.0 from 63.1.

Economists expect inflation concerns to remain a key challenge for policymakers, with the US Federal Reserve signalling caution on interest rates amid persistent price pressures.