U.S. composite PMI rises to 52.2 in June as manufacturing surges

The U.S. economy expanded for a third straight month in June, but manufacturing job cuts hit their deepest level since the 2009 financial crisis, exposing a widening gap between production growth and labor market health.

U.S. business activity accelerated in June as the S&P Global Flash Composite PMI rose to 52.2 from 51.5, beating the 50.8 consensus, though manufacturing employment contracted at the sharpest pace in 17 years outside the pandemic.

"Most worrying was the further fall in employment, notably in the manufacturing sector," Chris Williamson, chief business economist at S&P Global Market Intelligence, said. "Factory job cuts are running at the highest since 2009 if the pandemic is excluded."

Manufacturing output grew at its fastest rate since July 2021, with the factory PMI climbing to 55.7 from 55.1, above the 54.1 consensus. New orders posted their largest increase in more than four years. The services PMI rose to a four-month high of 51.3 from 50.7, also beating the 50.9 forecast. Yet the employment sub-index for manufacturing fell to its lowest since April 2020, as companies cut headcount for the third time in four months because of rising raw-material costs and uncertainty about demand sustainability.

The divergence between output and employment suggests the economy is growing at roughly a 1% annualized rate in the second quarter, Williamson said, well below the 1.6% pace recorded in the first quarter. That leaves the Federal Reserve navigating a dynamic where manufacturing production is accelerating on precautionary inventory building while the broader labor market softens — a situation that could influence the pace of any future rate adjustments.

Supply chain disruptions tied to the Middle East conflict and ongoing tariff pressures drove the longest supplier delivery delays since August 2022, according to the report. Companies stockpiled inputs as a hedge against further disruptions, inflating factory output figures in a way Williamson described as "temporarily buoyed by inventory building because of supply fears."

The last time manufacturing employment contracted at this pace outside a recession was in the second half of 2009, when the economy was emerging from the global financial crisis. Then, as now, output growth preceded a sustained jobs recovery by several quarters. The difference this cycle is the combination of elevated input cost inflation — which, while cooling slightly from May's peak, remained the second-highest in nearly four years, according to S&P Global.

Services sector drag persists

The services sector, which accounts for roughly two-thirds of U.S. economic output, continued to grow at a subdued pace. Customers pushed back against high prices because of low consumer confidence, Williamson said, keeping the services PMI barely above the 50 expansion threshold. That weakness in consumer-facing industries helps explain why aggregate GDP growth remains tepid despite the manufacturing surge.

Gold prices edged lower after the data, with spot gold last trading at $4,134.53 an ounce, down 1.56% on the day, as the stronger-than-expected composite reading reduced demand for haven assets.

The Bureau of Economic Analysis is scheduled to release its third estimate of first-quarter GDP on June 25, which will provide a clearer picture of whether the economy maintained momentum into the second quarter.

This article is for informational purposes only and does not constitute investment advice.