US Factory Growth Cools in June as Supply Gluts, Mideast Tensions Ease

US manufacturing activity saw a noticeable slowdown in June, with the Institute for Supply Management's (ISM) Purchasing Managers' Index (PMI) dipping to 53.3% from May's robust 54.0%. While still indicating expansion for the sixth straight month, this moderation suggests that the earlier rush by businesses to stock up on goods, driven by fears of new supply chain snarls and price hikes from Middle East tensions, is now fading. The geopolitical fallout from the US-Israel war with Iran and the broader Middle East conflict had spurred companies to front-load orders, creating an artificial boost to manufacturing in previous months. Although a fragile ceasefire has somewhat eased oil prices and improved supply chain delivery times, concerns about raw material costs persist, highlighted by the Prices Index remaining elevated despite a significant drop. However, an ongoing artificial intelligence investment boom has provided some resilience, helping to soften the blow to factories. This cooling manufacturing pace, alongside contracting exports and sluggish employment growth, paints a more cautious picture for the US economy in the second half of 2026. Economists are closely watching for how this data influences the Federal Reserve decisions, especially with financial markets still anticipating potential interest rate hikes this year to tame persistent inflation, even as overall economic growth forecasts appear weaker. The shift points to businesses navigating a complex landscape of moderating demand and persistent, albeit easing, cost pressures.