Key Highlights

• The ISM Manufacturing PMI fell to 53.3 percent in June from 54.0 percent in May, marking a sixth straight month of expansion.

• Fourteen manufacturing industries reported growth, led by electrical equipment, machinery, and computer and electronic products.

• The Employment Index improved to 49.7 percent, with 64 percent of surveyed manufacturers reporting they were hiring.

• The Prices Index dropped 9.1 percentage points to 73.0, its largest monthly decline since July 2022, though input costs remain elevated.

Manufacturing Expansion Continues at a More Moderate Pace

US manufacturing activity expanded for a sixth consecutive month in June, according to the Institute for Supply Management, though the pace of growth moderated from May's four-year high. The Manufacturing PMI registered 53.3 percent, down 0.7 percentage point from the prior month, with four of five component subindexes remaining in expansion territory.

The slowdown followed a period in which businesses accelerated orders to get ahead of potential supply disruptions and price increases tied to the Middle East conflict, an effect that appears to have faded as a ceasefire between the United States and Iran pushed oil prices back toward pre-conflict levels.

Despite the deceleration, the reading corresponds to an estimated 2 percent annualized increase in real gross domestic product, according to ISM's historical modeling, and marks the 20th consecutive month of overall economic expansion by the survey's broader benchmark.

Artificial Intelligence Investment Offsets Geopolitical Drag

A central theme in June's data was the continued role of artificial intelligence-related capital spending in supporting factory activity even as geopolitical concerns receded from panelist commentary. Mentions of the Iran conflict as a business issue fell to 31 percent of respondent comments from 42 percent in May, while pricing volatility concerns eased to 50 percent from 57 percent.

Computer and electronic products, machinery, and transportation equipment were among the largest industries reporting increased new orders and production, sectors closely tied to technology infrastructure buildout. Memory components, semiconductors, and electronic components remained in short supply and continued to see price increases, reflecting sustained demand pressure from AI-related manufacturing even as broader input cost inflation showed signs of cooling.

The Employment Index, while still in contraction at 49.7 percent, posted its second consecutive monthly improvement, with the ratio of respondents reporting hiring over headcount reductions nearly reversing from where it stood at the start of the year.

Balancing Cooling Inflation Against Persistent Tariff and Trade Uncertainty

The sharp decline in the Prices Index could signal meaningful relief from the elevated input cost pressures that have weighed on manufacturers throughout the year, though prices remain in expansion territory and are likely to stay elevated as AI-related demand continues to raise costs for semiconductors and electronic components.

Tariff-related concerns persisted among panelists despite a modest decline in mention frequency, with some transportation equipment manufacturers describing recent Section 232 tariffs as a direct threat to profitability. The stabilization of supply chains following the Middle East ceasefire could support further moderation in delivery times and pricing pressure in coming months, though panelists in multiple industries flagged concern about lingering effects even after the Strait of Hormuz situation fully normalizes.

Whether the employment improvement observed in June represents a durable trend or a temporary rebound is likely to become clearer as subsequent reports are released.

Conclusion

June's ISM data points to a manufacturing sector that remains in expansion but is adjusting to the fading effects of Middle East-driven order front-loading. Continued AI-related capital investment appears to be providing an offsetting source of demand, particularly within computer, electronics, and machinery categories, even as broader employment conditions remain in contraction. The interplay between cooling price pressures, persistent tariff uncertainty, and AI-driven demand is likely to remain a defining dynamic for the sector in the months ahead.