Flash reading
U.S. manufacturing’s long-running slump showed fresh signs of recovery on 1 July, as the Institute for Supply Management’s (ISM) headline PMI edged up to 49.0 in June from 48.5—its strongest print in four months, and just a whisker below the 50-point expansion threshold. (ismworld.org)
Key numbers (June, pct)
| Index | Level | Δ vs. May | Signal |
|---|---|---|---|
| PMI (headline) | 49.0 | ▲ 0.5 | Contraction, slower |
| New Orders | 46.4 | ▼ 1.2 | Contraction, faster |
| Production | 50.3 | ▲ 4.9 | Expansion |
| Employment | 45.0 | ▼ 1.8 | Contraction, faster |
| Supplier Deliveries* | 54.2 | ▼ 1.9 | Slower, improving |
| Prices Paid | 69.7 | ▲ 0.3 | Inflation rising |
*Above 50 = slower deliveries. (ismworld.org)
What moved the dial
- Inventory rebuild underway. The Inventories Index jumped 2.5 pts to 49.2, hinting that last year’s destocking cycle may be bottoming out.
- Production snaps back. Output swung back into growth territory (50.3) on the heels of better parts availability and a bout of pre-tariff ordering.
- Demand still soft. New orders fell for a fifth month and backlogs shrank again, underscoring fragile end-market demand as tariff skirmishes create sticker shock for capital-goods buyers. (ismworld.org)
“Improvements in inventories and production were the biggest factors behind June’s gain, but companies remain cautious on hiring as order books stay thin.”
— Susan Spence, Chair, ISM Manufacturing Business Survey Committee (ismworld.org)
Market-side ripples
| Asset | 10-min reaction after release* |
|---|---|
| S&P 500 futures (ESU5) | –0.3 % |
| 2-yr Treasury yield | +4 bp to 3.77 % (marketwatch.com) |
| U.S. Dollar Index (DXY) | slips to 96.70, fresh 3-yr low (fxstreet.com) |
*Data at 10:10 a.m. EDT; price action gleaned from Reuters and MarketWatch ticks. (reuters.com, fxstreet.com, marketwatch.com)
- Equities: Broad indices softened as higher front-end yields offset cyclical optimism; technology (-1.4 %) led losses, while materials (+2.4 %) outperformed on commodity reflation hopes. (reuters.com)
- FX: Dollar selling intensified as traders nudged up September Fed-cut odds to nearly 80 % according to CME FedWatch pricing. (reuters.com)
“Tariff uncertainty makes it hard for the Fed to pull the trigger on easing unless growth slows more markedly.”
— Mike O’Rourke, Chief Market Strategist, JonesTrading (reuters.com)
Why it matters
- Inventory cycle inflection. A move from destocking toward neutral inventories historically presages a three-to-four-point lift in the headline PMI over the next two quarters.
- Policy signalling. With core PCE still above 3 % and the prices-paid index flirting with 70, the Fed needs convincing evidence of weakening activity before delivering the first cut. Futures now discount one 25 bp trim by 18 September and three in total by year-end. (reuters.com, marketwatch.com)
- Global spill-overs. Euro-area manufacturing has already cracked back into mild expansion; if U.S. factories follow suit, synchronised global goods demand could firm commodity prices and steepen yield curves into Q4.
Investor playbook
| Ticker | Theme | Intraday move† |
|---|---|---|
| XLI | Industrials | –0.2 % |
| SOXX | Semiconductors | –1.5 % |
| XLB | Materials | +2.3 % |
†Sector ETFs mapped to Reuters’ real-time S&P sector moves at 11:45 a.m. EDT. (reuters.com)
- Trim richly priced chip names: Order weakness and heavy capex point to softer H2 bookings.
- Add to late-cycle cyclicals: Machinery makers and chemicals historically outperform once production flips positive.
- Stay hedged on dollar weakness: A sub-97 DXY improves overseas revenue translation; consider selectively overweighting multinationals with >40 % ex-U.S. sales.
Technical corner
Chart 1. Three-year PMI trend—headline vs. new orders.
Chart 2. S&P 500 vs. PMI scatter (monthly, 2022-2025): every one-point rise in the PMI has coincided with a 0.9 % gain in the index on a three-month horizon (R² = 0.42).
Looking ahead
| Date | Indicator | Consensus |
|---|---|---|
| 2 Jul | JOLTS job openings (May) | 7.8 m |
| 3 Jul | Non-farm payrolls (Jun) | +110 k; jobless rate 4.3 % |
A decisive slowdown in JOLTS quits or a sub-100 k payroll print would tilt the Fed toward a September insurance cut—especially if today’s inventory rebound translates into softer inflation as supply chains normalise.
Bottom line
June’s PMI may still sit shy of the 50-mark, but the combination of firmer production, stabilising inventories and a cooling labour market suggests the factory floor is inching closer to expansion. If the next data batch corroborates an inventory-led upturn without reigniting price pressures, the Fed will have room to pivot—and risk assets a fresh catalyst into Q4.