U.S. ISM Manufacturing Index (June 2025)

ISM Manufacturing Index Contracts for Fourth Consecutive Month in June

• The ISM Manufacturing Index rose to 49.0 in May, up from 48.5 in May, but remained in contraction territory.
• Nine of 18 industries reported growth for the month, up from seven in May. Nearly half (46%) of manufacturing GDP contracted in June, down from the 57% share recorded in May.
• Demand conditions remained weak on aggregate. The new orders index fell to a 3-month low (46.4 vs. 47.6 in May), while the backlog of orders retraced May's rebound (44.3 vs. 47.1 in May). The contraction in new export orders in June cooled (46.3 vs. 40.1 in May) while the imports index reversed May's sharp decline (47.4 vs. 39.9 in May).
• The production index increased notably in June, rising to 50.3 from 45.4, marking the first expansion for the index since February. However, the employment index contracted at a quicker pace, falling to 45.0 vs. 46.8 in May.
• Price gains accelerated in June, coming in at 69.7 vs. 69.4 in May. The prices index has fluctuated near a three-year high for the past four months.  

Key Implications

• Manufacturing activity contracted at a slower pace in June as production picked up modestly. However, the industry remains sluggish overall, with domestic and foreign demand continuing to contract under current tariff policies and elevated uncertainty regarding their duration and future composition. With steel and aluminum tariffs doubled to 50% at the start of June and the 90-day suspension of broader reciprocal tariffs scheduled to end next week, these headwinds are likely to build moving forward absent a material shift in trade policy.
• The upward pressure on prices noted by manufacturers in the ISM survey began to show up more materially in the producer price index (PPI) for intermediate goods over the past two months. However, higher input costs have not filtered through to consumer prices materially yet, likely owing in part to the frequent shifts in trade policies and the inventory frontloading recorded earlier in the year. Moving forward, this will likely begin to change the longer current tariff policies remain in effect. As a result, the Federal Reserve is only expected to reduce interest rates gradually through the second half of the year, offering limited support to the manufacturing sector.

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