Strong rebound in manufacturing demand, US June business activity expansion at the fastest rate in almost five months

The latest survey released by S&P Global on Tuesday shows that the expansion rate of commercial activities in the United States in June has reached the fastest level in nearly five months, with significant rebound in manufacturing demand driving continued growth in overall economic activities. However, businesses are still facing challenges such as cost pressures, supply chain constraints, and weak consumer confidence. The data shows that the preliminary reading of the Markit Composite Purchasing Managers' Index (PMI) for the United States in June rose to 52.2, higher than the previous value. A PMI above 50 indicates that economic activity is in an expansionary state. In particular, the manufacturing sector performed particularly strongly. The US manufacturing PMI in June rose to 55.7, the highest level since May 2022. The survey shows that the growth rate of new orders for manufacturers reached the highest level in over four years, prompting businesses to accelerate production to meet the growing market demand. Meanwhile, service sector activities also improved. S&P Global pointed out that the consumption and business activity growth brought about by the World Cup has boosted the performance of the service sector to some extent. However, high levels of inflation and insufficient consumer confidence continue to exert pressure on service demand, and the overall expansion rate of the service sector remains relatively moderate. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the easing of tensions in the Middle East has boosted confidence among US businesses. However, he also pointed out that service sector growth remains weak, and the strong performance of the manufacturing sector is partly driven by businesses stockpiling inventories in advance. "There are more positive signs in the manufacturing sector, but we remain cautious as some of the growth may come from businesses stocking up in anticipation of supply disruptions." The survey shows that although the increase in input costs has slightly slowed down, overall costs are still rising, while supplier delivery times continue to lengthen. As supply chain delays become increasingly common, businesses expect to face further price pressure in the future. In this context, manufacturing businesses are speeding up the pace of purchasing raw materials. Purchasing activities in factories in June grew significantly, with the growth rate of raw material inventories reaching the second highest level on record, reflecting businesses' efforts to stock up on materials needed for production in advance to address potential supply risks. Meanwhile, high raw material prices are also forcing businesses to control costs through other means, including reducing workforce size. The data shows that employment in both the manufacturing and service sectors decreased in June. The employment index for the manufacturing sector fell to the lowest level since May 2020, indicating that some businesses are reducing staff or cutting back on hiring to alleviate profit pressures. On the other hand, service sector businesses are choosing to pass on some costs to consumers, further accelerating the pace of price hikes. Despite facing cost and employment pressures, businesses have improved their optimism about future prospects. The survey shows that both manufacturing and service sector businesses have seen an uptick in their expectations for the operating environment in the coming months. The data for this survey was collected from June 11th to 22nd. During this period, the US and Iran signed a memorandum of understanding, paving the way for a permanent peace agreement in the future and boosting market expectations for energy supply recovery and easing inflation pressures. Overall, the US economy showed strong resilience at the end of the second quarter, with manufacturing becoming a major driver of growth. However, factors such as inventory accumulation, cost pressures, and slowing job growth also indicate that there is still some uncertainty in the current recovery. The market will continue to focus on corporate orders, inflation trends, and supply chain recovery to assess whether this round of manufacturing recovery can be sustained.