MNI INTERVIEW: Price Falls Supports US Factory Growth - ISM

Falling energy prices are likely to support ongoing growth and potentially fresh hiring in coming months for a manufacturing sector that experienced a steadying of growth last month, Institute for Supply Management manufacturing chair Susan Spence told MNI.

"If the situation in the Middle East really does improve and the prices continue to drop, which I think you will see that given oil prices, then I think it fuels the expansion," she said in an interview Wednesday. 

The ISM manufacturing index eased 0.7ppts to 53.3 in June, slightly below market expectations. The headline measure has been in a narrow range between 52.4 and 54.0 in each of the first six months of the year, after almost all of the prior three years just below 50. 

The report details point to a positive outlook for the sector. Sentiment among survey respondents broadly improved and the decline in the prices paid index bodes well for future growth, Spence said. "I'm overall optimistic, and this is the third month in a row."

The prices paid Index fell to 73.0 from 82.1, the largest one month decline since 2022. The new orders index eased to 56 from 56.8. The employment index rose 1.1ppts to 49.7. While the employment index remains in contraction, it's the highest since January 2025.

ENERGY PRICES 

With oil prices receding and the Strait of Hormuz more open than before, supply side indicators began to improve last month. "If oil prices hold and they don't go back up, there's a host of commodities that should settle down," she said. There were 27 commodities reported up in price versus 5 reported down in price, and 5 commodities were in short supply.

Spence laid out a potential path in which the U.S. central bank could see gains in both employment and price stability, perhaps obviating the need for upward rate adjustments. (See: MNI INTERVIEW: Fed’s Next Rate Move Most Likely Upward-Kohn) 

"If the prices index could settle back toward 50, it almost feels like equilibrium there, then I think the inflation worries die down," she said. "If there is an increase in employment, I think they're in a really good state. Then that'll certainly influence the Fed's decision, although they'll look at more than just manufacturing."

Spence, however, remains concerned about the path of tariff policy under the Trump administration. "The bad guy in the shadow is, what's going to happen with these 232 tariffs?"