WASHINGTON D.C.: In June, US manufacturing continued to decline, reaching levels last seen at the start of the COVID-19 pandemic. However, the cost of production also continued to drop.

The survey from the Institute for Supply Management (ISM), released this week, showed that the slowdown in production forced factories to layoff staff.

The lay-offs are happening “to a greater extent than in prior months,” said ISM Manufacturing Business Survey Committee Chair Timothy Fiore.

While the ISM survey indicates that the US economy is in recession, so-called “hard data,” such as non-farm payrolls, first-time applications for unemployment benefits and housing starts, suggest that the economy is just about holding on.

However, as businesses and consumers deal with the 500 basis points worth of interest rate increases from the Federal Reserve since March 2022, risks of a downturn have increased.

Andrew Hunter, deputy chief U.S. economist at Capital Economics, said, “This provides further reason to suspect that a recession is on the horizon. The ISM survey adds to the evidence that core goods prices will start falling again soon,” as quoted by Reuters.

In June, the ISM’s manufacturing PMI dropped to 46.0, the lowest level since May 2020 and the eighth consecutive month that it was below the 50 threshold, indicating contractions in manufacturing, the longest such stretch since the Great Recession.

Economists polled by Reuters had forecast the index rising to 47.

Anticipating weak demand, businesses are also carefully managing inventories.

Jonathan Millar, a senior economist at Barclays in New York, said, “Inventory investment has become a drag on activity as factories become increasingly wary of excess stock building. We continue to see ripening conditions for a downturn in hard data on factory production in the next few quarters,” according to Reuters.

Weak demand is depressing prices for inputs, with easing supply chain and higher borrowing costs dampening demand.
The ISM survey’s measure of prices paid by manufacturers fell to 41.8 from 44.2 in May.

This week, the US government is expected to announce that in June, payrolls increased by 225,000 jobs after rising by 339,000 in May.