U.S. manufacturing remains in expansion, but momentum has cooled. New data show softer PMI readings, weaker factory orders, and slower industrial production, while hiring stays below growth territory and input costs remain elevated despite easing from recent highs.
U.S. factory activity remains in expansion territory, but the latest data show momentum cooling after a stronger spring. Softer hiring, weaker headline orders, and slower industrial production suggest manufacturing is still growing, just at a more measured pace that keeps investors focused on selective demand rather than broad acceleration.
U.S. manufacturing is still growing, but the engine is no longer revving as hard as it did in late spring. The past 30 days of production data show a sector that remains in expansion, yet one that is dealing with slower momentum, softer hiring, and cost pressure that has eased but not disappeared.
Key Takeaways
ISM Manufacturing PMI slipped to 53.3 in June from 54.0, missing the 54.0 estimate but still marking a sixth straight month of expansion.
Factory orders fell -1.3% in May and durable goods orders dropped -4.5%, yet ex-transportation readings stayed firm at 1.9% and 1.3%, which points to underlying demand outside aircraft.
Manufacturing employment improved to 49.7 from 48.6, but it remained below 50, keeping the hiring picture weak.
ISM manufacturing prices fell to 73.0 from 82.1, a sharp cooldown versus the 79 estimate, though the level still signals elevated input costs.
Industrial production rose just 0.1% in May after 0.9% in April, reinforcing the view that U.S. factory output is advancing, but at a slower pace.
U.S. Manufacturing PMI Shows Expansion but Slower Momentum
The clearest signal from the last month is that U.S. manufacturing is still in expansion mode. However, the pace cooled. ISM Manufacturing PMI came in at 53.3 in June, down from 54.0 in May and below the 54.0 estimate. That is still a healthy reading above 50, but it also confirms that May was the hotter month.
The same pattern showed up in S&P Global data. Its June manufacturing PMI landed at 53.9, down from 55.1 and below the 55.7 estimate. Chicago PMI told a similar story, falling to 56.7 from 62.7 and missing the 58.1 forecast. In plain English, factory activity is still expanding, but the burst of speed seen earlier in the cycle has faded.
That cooling fits the recent narrative around front-loaded demand. Reuters reported that some firms had pulled orders forward to avoid shortages and higher prices tied to the Middle East conflict. When companies rush orders into one month, the next month often looks softer. Manufacturing is still moving forward, but the road is less downhill than it looked in May.
Factory Orders and Durable Goods Data Reveal Core Business Demand
Headline orders looked rough at first glance. Factory orders fell -1.3% in May after a 5.3% gain, though that was better than the -1.8% estimate. Durable goods orders also dropped -4.5% after an 8.5% rise in the prior month, matching forecasts. Those are big swings, and they can spook fast readers. Still, the underlying details were better.
Orders excluding transportation rose 1.9% in the factory orders report, far above the 0.4% estimate and ahead of the 1.7% prior reading. Durable goods ex transportation increased 1.3%, beating the 0.6% estimate and only slightly below the 1.4% prior month. That matters because transportation, especially commercial aircraft, can throw the headline around like a loose bolt in a machine.
Reuters tied the May drop in factory orders to weaker commercial aircraft bookings, while noting that demand elsewhere remained strong and was partly supported by AI-related investment. That distinction is important. A fall driven by aircraft is very different from a broad retreat in equipment demand. The ex-transportation data argue that business spending has slowed less than the headline implies.
There was one softer detail beneath the surface. Durable goods orders ex defense fell -4.6% in May, worse than the -3.9% estimate, after an 8.4% rise. Even so, the stronger ex-transportation numbers keep the broader health check in the stable category rather than the warning zone.
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Industrial Production and Manufacturing Output Point to a Late-Cycle Slowdown
Industrial production added another layer to the story. Output rose 0.1% in May, below the 0.3% estimate and down from 0.9% in April. On a yearly basis, industrial production increased 1.7%, up from 1.4% but slightly below the 1.9% estimate. That mix says output is still rising, yet the monthly pace has cooled sharply.
The historical index backs that up. The industrial production total index moved to 102.6475 in May from 102.509 in April and 101.6273 in March. So the level is still climbing. However, the monthly gain has become thin. That is the profile of a sector still expanding, but with less room for error.
Broader macro data also support that late-cycle view. Real GDP rose to 24180.419 in the first quarter of 2026 from 24055.749 in the prior quarter, while the federal funds rate held at 3.63% in June. Growth is still present, and policy is still restrictive enough to keep pressure on rate-sensitive industries. Manufacturing is not rolling over, but it is no longer getting an easy tailwind.
Manufacturing Employment and Input Prices Keep the Fed in a Holding Pattern
The labor and inflation pieces remain mixed. ISM manufacturing employment improved to 49.7 in June from 48.6 and beat the 49.0 estimate. That was a step in the right direction. Still, the reading remained below 50, which means factory hiring continued to contract.
That weakness is not isolated. Reuters noted that the ISM manufacturing employment index has been in contraction in 40 of the last 41 months since January 2023. Services hiring has also been soft, with ISM non-manufacturing employment at 47.9 in May. This is a cooling labor market, not a collapse, but it is hard to call it healthy when hiring has spent that long below the line.
On inflation, there was real improvement, but not relief. ISM manufacturing prices fell to 73.0 from 82.1 and came in well below the 79 estimate. That is a sharp drop. Yet 73.0 is still elevated by any normal standard. Services prices were also high at 71.3 in May. Meanwhile, the inflation rate in the historical data eased from 2.4 on June 1 to 2.23 on July 1, showing some moderation in the broader backdrop.
This is why the Fed remains stuck in the middle. The June 16-17 FOMC decision kept rates at 3.50%-3.75%, and the recent manufacturing data fit that stance. Growth is too firm to justify a quick cut, while prices are too elevated to declare victory on inflation. In other words, the factory floor is cooler, but not cool enough to change policy.
The U.S. production and manufacturing health check is steady, but less robust than it looked a month ago. Expansion remains intact, yet slower output, soft hiring, and still-high input costs leave the sector in a narrow lane: healthy enough to avoid recession talk, but not strong enough to ignore the drag from sticky inflation and tighter policy.
▌Common Questions
Frequently asked questions
+Is U.S. manufacturing still growing right now?
Yes. The ISM Manufacturing PMI fell to 53.3 in June, which is below May’s reading but still above 50, indicating continued expansion. Other survey data also remained in expansion territory, though at a slower pace.
+Why did factory orders fall if manufacturing is still expanding?
Headline factory orders and durable goods orders were dragged lower by volatile transportation categories, especially commercial aircraft. Orders excluding transportation were still positive, which points to underlying business demand holding up better than the headline suggests.
+What does weak manufacturing employment mean for the economy?
Manufacturing employment improved slightly to 49.7, but it remained below 50, signaling that hiring is still soft. That usually means factories are cautious about adding workers, which can limit the sector’s ability to reaccelerate quickly.
+Are U.S. factory input costs still high?
Yes, but they are cooling. The ISM manufacturing prices index fell sharply to 73.0 from 82.1, showing less price pressure than before, although the reading still indicates elevated input costs for manufacturers.
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