American factories are still growing, but the enthusiasm is fading. The Institute for Supply Management’s June manufacturing PMI came in at 53.3, down from 54.0 in May and missing economist expectations that called for the reading to hold steady.

The number is still above 50, the dividing line between expansion and contraction.

The numbers tell a story of slowing momentum

Look at the subindexes and the picture gets clearer. New Orders fell to 56.0 from 56.8 in May, suggesting that while demand hasn’t collapsed, the pipeline of incoming work is thinning out. Production dropped more sharply, sliding to 52.2 from 54.3, a two-point decline that indicates factories are pulling back on output.

Then there’s the Prices Index, which is doing something unusual: falling fast but staying high. It plunged to 73.0 from 82.1, a drop of more than nine points in a single month.

The Employment Index offered a faint glimmer of hope, ticking up to 49.7. But it remained below 50, meaning factory payrolls are still technically contracting.

Tariffs, geopolitics, and the inflation hangover

Survey respondents flagged a familiar cocktail of concerns: inflation that won’t quit, persistent geopolitical tensions in the Middle East, and the ever-present cloud of potential tariff changes and shifting trade policies.

What this means for investors and risk assets

Manufacturing PMI is one of the signals the Federal Reserve watches when calibrating interest rate decisions. At 73.0, factory input costs are still climbing at a pace that should give inflation hawks on the Federal Open Market Committee pause before considering any dovish pivot.

One dynamic worth watching closely is how the employment component evolves. At 49.7, it’s essentially on the doorstep of expansion.

The next ISM report, due in early August, will reveal whether June’s softening was a blip or the beginning of a trend.