--ISM’s Spence: Not Much Stockpiling During Iran War as Seen in Early Days of High US Tariffs Slapped Last Year

--Spence: Still Cautious about 2026 Outlook but June, Semiannual Reports Indicate Optimism Among Firms

(MaceNews) - U.S. manufacturing activity expanded for the sixth straight month in June but at a slower pace than in May as both new orders and production took a break after hitting four-year highs at the beginning of the year, when the sector sprang back to life on vague optimism that demand would improve.

The monthly report released Wednesday by the Institute for Supply Management also pointed to cautious optimism for the rest of 2026, thanks to strong global demand for memory chips amid the artificial intelligence boom, easing global energy prices to around pre-Iran war levels and receding concerns over the direct negative impact of the protectionist U.S. trade policy.

The purchasing managers index compiled by the ISM slipped 0.7 percentage point to a still decent 53.3 after rising 1.3 points to a four-year high of 54.0 in May. The index is up from 52.6 in January, when it jumped 4.7 points to indicate the manufacturing sector’s first expansion in 12 months.

“Of the five subindexes that make up the PMI, the new orders and production indexes grew slower as compared to the previous month, the supplier deliveries index slowed at a slower rate, and the employment and inventories indexes improved with the latter entering expansion territory,” ISM Manufacturing Business Survey Committee Chair Susan Spence said in a statement.

In June, 34% of the comments were positive (vs. 25% in May) and 66% negative (vs. 69%), with a 1-to-1.9 ratio of positive to negative sentiment (1 to 2.7 the previous month, according to the ISM. Among negative comments, the Iran war was mentioned in 31%, down from 42% in May, and tariffs in 17%, little changed from 18% previously; 50% of the panelists mentioned pricing volatility as an issue for their companies, down from 57% seen in the May report.

The recent expansion in the manufacturing sector does not come much from stockpiling as seen in the early days of high US tariffs imposed last year, Spence told reporters.

Spence also said she was not so worried about the slip in the production index in June (still in expansion for the eighth straight month) because the ISM’s semiannual report released on June 17 showed manufacturers projected their revenues would grow 8.4% in 2026, up from a 4.4% gain forecast in December.

Manufacturers also expect capital investment to increase 4.9% this year, up from a 3.0% rise estimated six months ago. She also pointed to a 1.4% employment growth forecast for 2026, up from a slight 0.4% expected at the end of last year.

Reading comments from ISM member firms for the June report, Spence said “it is all about pricing” and that “I’m erring on the caution’s side” in forecasting business conditions for the second half of the year. But she also noted that “optimism is there and it’s creeping in.”

“Conditions are optimistic but not yet booming for our company, even though many others, it seems, are experiencing growth,” a machinery producer told the ISM. “Machinery in support of defense and semiconductor manufacturing is very strong, a bright spot for our team.”

“Core business remains solid in the face of ongoing geopolitical uncertainty,” a firm from the miscellaneous manufacturing category said. “Cautiously optimistic that a deal will be reached to reopen the Strait of Hormuz; concerned about ongoing ripple effects even when the strait reopens but situation is highly concerning if the strait remains closed.”

The recent drop in crude oil prices to the levels seen before the Iran war broke out in late February is good news for everybody flighting the inflationary pressures caused by the Middle East conflict but energy prices still need to be monitored as to where they will settle, Spence said. “We will see if the ceasefire holds (between Washington and Tehran) and if there’s a final signing (of the bilateral peace agreement),” she said.

The prices index fell to 73.0 in June from 82.1 in May and the decrease of 9.1 percentage points is the largest decline since July 2022, when it dropped 18.5 points after Russia’s invasion of Ukraine had triggered a spike in global energy and commodities prices four months earlier. Yet, the latest reading still indicates that raw materials prices rose for the 21st straight month in June.

“The prices index reading is still being driven by (1) increases in steel and aluminum prices that impact the entire value chain, (2) tariffs applied to many imported goods and (3) increases in petroleum-based products as a result of the Middle East conflict,” Spence said in the report. Higher prices were reported by 55.1% of respondents in June, down from May’s 66.3%, she said.

Uncertainty remains over the U.S. trade policy and there is frustration among the auto and metal industries that have been directly hit by the stiff import duties imposed by President Trump.

“The new Section 232 tariffs continue to destroy our profitability and demand as we have to raise prices to deal with this gigantic tax,” a transport equipment maker said. “Add the ‘incentives’ for our company to pivot to purchasing non-U.S. sourced material, and one realizes the total ineptitude of this tariff policy.”

“Retail electronics sales seem to have stabilized to some extent,” a firm from the electrical equipment, appliances and components industry said. “The pause in tariff changes has been welcomed the last two months, but it’s only a matter of time before more confusion is introduced.”

The five sub-indexes that make up for the PMI (the previous month’s figures in parentheses):

New orders 56.0 (56.8) -0.8; in expansion for the sixth straight month. It rose a combined 3.3 points in April and May to recover some of its loss incurred in the previous two months totaling 4.6 points. The index recorded a 9.7-point jump in January to 57.1, the highest since 59.7 in February 2022.

Production 52.2 (54.3) -2.1; in expansion for the eighth month in a row. The June level is the lowest in six months. The index has fluctuated month to month after rising 5.2 points in January 2026 to 55.9, the highest since 58.1 in February 2022.

Employment 49.7 (48.6) +1.1; below the neutral level of 50 since October 2023; It is the highest since 49.7 in January 2025. The panelist comment ratio of hiring to managing/reducing head counts was 1.8 to 1 in June, nearly a reversal of the 1-to-2 ratio at the beginning of 2026, Spence said.

Supplier deliveries 57.4 (60.6) -3.2; the index at 60.6 in April and May the highest since 65.7 in May 2022 (above 50 means slower deliveries).

Inventories 51.4 (49.9) +1.5; the first expansion in 14 months; the highest since 52.7 in March 2025.

Among other sub-indexes:

Customers’ inventories 42.3 (42.7) -0.4; May’s 42.7 is the highest since 43.3 in December 2025. The index dipped 4.6 points to 38.7 in January 2026, hitting the lowest since 35.2 in June 2022.

Prices 73.0 (82.1) -9.1, the largest drop since 18.5 points in July 2022. The index remains elevated after rising 6.3 points in April to reach the highest since 87.1 in May 2022.