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- Prelim 52.4
- Prior 57.0
- First drop in new orders in over two years
- Inflation pressures remained historically elevated, but increases in input costs and output charges eased to three-month lows
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“The PMI survey has fallen in June to a level indicative of the manufacturing sector acting as a drag on GDP, with that drag set to intensify as we move through the summer. Forward-looking indicators such as business expectations, new order inflows, backlogs of work and purchasing of inputs have all deteriorated markedly to suggest an increased risk of an industrial downturn.
“Demand growth is cooling from households amid the cost-of-living crisis, and capital spending by companies is also showing signs of moderating due to tightening financial conditions and the gloomier outlook. However, most marked has been a steep drop in orders for inputs by manufacturers, which hints at an inventory correction.
“Some welcome news is that the drop in demand for inputs has brought some pressure off supply chains and calmed prices for a wide variety of goods, which should help alleviate broader inflationary pressures in coming months.”
I want to put this into perspective. The demand for manufactured goods during the pandemic was extraordinary as as it would down, firms over-ordered as they scrambled to get inventory.
So now it’s payback time. That will mean less demand for factories and negative numbers for months to come. Should that be a surprise? No. Will it lead to a ‘recession’ in manufacturing? Absolute. But that ‘recession’ is just the process of normalization and shouldn’t lead to mass factory layoffs or widespread pain, though I expect the usual commentators to act that way.
The ISM manufacturing survey is up next and expected at 54.9 from 56.1 previously.