Economic activity in the US manufacturing sector slowed further in June as optimism about the second half of the year weakens and concerns about employment rise, according to the Institute for Supply Management’s Manufacturing ISM Report on Business released Monday.

The report’s Manufacturing PMI fell to a reading of 46% in June from 46.9% in May. Readings below 50% generally indicate that the manufacturing economy is contracting.

“The US manufacturing sector shrank again, with the Manufacturing PMI losing ground compared to the previous month, indicating a faster rate of contraction,” said Timothy Fiore, chair of the ISM’s manufacturing business survey committee. “The June composite index reading reflects companies continuing to manage outputs down as softness continues and optimism about the second half of 2023 weakens.”

Production is slowing due to lack of work and suppliers have capacity, Fiore said, adding, “there are signs of more employment reduction actions in the near term.”

The employment index portion of the composite index fell to a reading 45.7% in June — indicating contraction — from 51.4% in May.

“Labor management sentiment at panelists’ companies indicate a slowdown in hiring, with layoffs slightly more prevalent,” Fiore said.

The Manufacturing PMI is based on data compiled from purchasing and supply executives across the US.