MACRO: US manufacturing PMI weakens to two-year low

• ISM Manufacturing PMI fell at a stronger pace than expected in June.
• Signs of easing price pressures

The US manufacturing activity slowed in June due to slowing demand, the Institute for Supply Management said on Friday. The ISM Manufacturing PMI plunged to 53 in June of 2022 from 56.1 in May, and below market forecasts of 54.9. New orders contracted for the first time in two years (49.2 vs 55.1), in a sign rising interest rates are hurting demand. Also, employment declined further (47.3 vs 49.6) although companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain. At the same time, supplier deliveries slowed (57.3 vs 65.7) while production (54.9 vs 54.2) and inventories (56 vs 55.9) increased slightly faster and price pressures eased (78.5 vs 82.2). Meanwhile, business sentiment remained optimistic regarding demand, but firms continue to note supply chain and pricing issues as their biggest concerns according to Institute for Supply Management

Today's reading pointed to the slowest growth in factory activity since June of 2020. Source: Bloomberg via ZeroHedge

The report indicated a further contraction in the labor market and dwindling numbers of new orders, while order backlogs grew at a much slower rate. This may negatively affect factory growth in the upcoming months. However, it is not just manufacturing that is losing momentum. The report highlighted a drop in inflation pressures. Of course easing price pressures alone will not cause Fed to completely abandon its hawkish stance however, interest rate hikes in the coming months does not necessarily have to be as high as the market currently expects.