S&P’s Global Flash US Composite Purchasing Managers Index signaled a further expansion of business activity at the end of the second quarter, although the rate of growth slowed to a three-month low. The index is now at a reading of 53.0, down from 54.3 in May.

Manufacturers reported a renewed contraction in production, while service providers saw a slower but still solid upturn in output.

Jobs growth sank to the slowest since January. Although higher wages added to firms’ costs, selling price inflation for goods and services hit a 32-month low.

“The overall rate of expansion of business activity in the US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. 

However, Williamson noted that growth remains dependent on service sector spending, with manufacturing slipping back into decline after three months of growth.

“While improving supply conditions had helped boost manufacturing production in prior months, an increasingly severe downturn in new orders mean factories are running out of work,” he said.

Services Sector

Services firms continued to hire amid greater new orders. That said, the rate of job creation eased to the weakest since January amid challenges replacing voluntary leavers, according to the report.

In response to problems hiring sufficient new staff, the level of outstanding business at service providers increased in June. The upturn followed a decline seen in May, though it was only marginal overall. Strong demand conditions helped support an uptick in business confidence in June. Firms were upbeat in their expectations for output over the coming year, with the level of optimism the highest since May 2022.

“The tightness of the labor market remains a concern, and upward wage pressure remains a key driver of higher costs in the service sector,” said Williamson. “However, it is encouraging to see the overall rate of selling price inflation for goods and services drop to the lowest since late 2020 in a sign that the Fed is winning its fight against inflation.”

Manufacturing Sector

In line with subdued demand, firms sought to run down their stocks and reduce input purchasing in June. Input buying fell at the steepest rate since January, and both pre- and post-production inventories declined sharply.

Greater success in finding suitable candidates allowed firms to expand their workforce numbers in June despite concerns surrounding future demand conditions. The rate of job creation slowed slightly but remained among the fastest in a year. Increased employment and lower new orders led to a substantial decline in backlogs of work. 

Although strongly upbeat in their expectations, manufacturers moderated their confidence regarding the outlook for output over the next year in June. The degree of optimism was the weakest in 2023 so far amid customer hesitancy and inflationary concerns.