U.S. manufacturing activity slowed more than expected in June, with a measure of new orders contracting for the first time in two years, more evidence that the economy was cooling amid aggressive monetary policy tightening by the Federal Reserve.
The Institute for Supply Management said on Friday that its index of national factory activity dropped to 53.0 last month, the lowest reading since June 2020, when the sector was rebounding from a COVID-19 slump.
That followed a reading of 56.1 in May. A reading above 50 indicates expansion in manufacturing, which accounts for 11.8% of the U.S. economy. Economists polled by Reuters had forecast the index would fall to 54.9.Though some of the moderation in factory activity reflects a shift in spending back to services from goods, it is in line with recent data showing rising interest rates dampening demand.
The Fed last month raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994, to quell high inflation. Another similar-sized rate hike is expected in July. The U.S. central bank has increased its benchmark overnight interest rate by 150 basis points since March. The ISM survey's forward-looking new orders sub-index dropped to 49.2 from a reading of 55.1 in May. Despite the first decline below the 50 level since May 2020, manufacturers have plenty of work to keep factories humming.Though business inventories were revised sharply higher in the first quarter and major retailers like Walmart
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