Economic activity in the U.S. manufacturing sector slowed more than expected in June to the lowest level in two years, as both demand and employment contracted according to the latest data.
The Institute for Supply Management's manufacturing purchasing manager's index fell more than 3 points last month from May to 53%, the lowest reading since June 2020. Analysts polled by Refinitiv had expected June's PMI to come in higher at 54.9%.
Any reading about 50 indicates growth in the sector, and June 2022 marked the 25th consecutive month of growth after manufacturing contracted in April and May 2020 during the throes of the coronavirus pandemic.
Demand in the industry dropped last month, with ISM's new orders index falling 5.9 points to 49.2%. "The U.S. manufacturing sector continues to be powered — though less so in June — by demand while held back by supply chain constraints," said Timothy Fiore, who overseas the survey.
The manufacturing employment index also fell in June to a reading of 47.3%, declining for the second month in a row.
"Challenges with turnover (quits and retirements) and resulting backfilling continue to plague efforts to adequately staff organizations, but to a lesser degree compared to the previous month," Fiore said.
The manufacturing slowdown could be further evidence that the economy is cooling, as the Federal Reserve becomes more aggressive in tightening monetary policy and raising interest rates to reduce demand in an effort to bring down soaring inflation.
Fed Chair Jerome Powell said this week that there is "no guarantee" the central bank could rein in inflation without hurting the job market, and reiterated policymakers' commitment to stabilizing prices.
ISM's latest data shows there are some encouraging signs that inflation might have peaked, with the measure of prices paid by manufacturers declining from 82.2 in May to 78.5 in June.
Fiore noted, "Prices expansion slightly eased for a third straight month in June, but instability in global energy markets continues."
Reuters contributed to this report.