Manufacturing sector weakens in June

Sentiment in the manufacturing sector fell in June after just three months of barely rising growth, the Institute for Supply Management said Monday. With the Federal Reserve still keeping interest rates high, demand for industrial goods was subdued for much of the year.

The manufacturing index fell from 48.7 to 48.5, its lowest level since February. Generally, if the index is above 48.7 for a period of time, it indicates overall expansion and vice versa.

On the other hand, sub-indices indicate expansion if they are above 50. Most of the survey’s sub-indices recorded a decline in June. The most important was the employment indicator, which showed another decline after a brief rebound in May, suggesting a weaker month for job creation in the sector.

Production, new orders and inventories also fell in June, a sign of deteriorating sentiment on both supply and demand.

One bright spot that the Fed prioritized was the inflation rate — a subindex of prices paid — which posted its smallest increase in six months, easing concerns that commodity inflation could pick up this year.

Read more RSM insights on manufacturing, the economy and the midmarket.

It’s hard to see any reason to expect demand for industrial goods to pick up unless the Fed cuts rates two to three times this year, as we think it should. The economy will only cool, putting more pressure on demand for spending.