US FLASH PMI: Growth slips lower as goods prices jump higher, but job gains accelerate
The headline S&P Global US PMI Composite Output Index registered 52.8 in June, according to the ‘flash’ reading (based on about 85% of usual survey responses), down from 53.0 in May. While the June rise in output was the third strongest so far this year, the pace of growth remains well below that recorded in late 2024. Output has nevertheless now grown continually for 29 months.
A positive aspect of June’s expansion was that growth became more balanced between manufacturing and services. Although service sector output growth cooled slightly, it remained solid while manufacturing output rose for the first time since February.
The ongoing expansion reflected a further rise in new orders, which have now risen continually for 14 months, though the rise in orders dipped slightly in June to remain well below the strong gains seen at the turn of the year. Similar gains in inflows of new work were recorded in the manufacturing and service sectors and, in both cases, growth was driven by rising domestic demand.
This served to mask a fall in export orders in June. Service providers again recorded a steeper contraction than manufacturers, the latter down only slightly in June after a small rise in May. Services exports have suffered the largest quarterly contraction since late 2022 in the three months to June.
June saw further inventory building in manufacturing. Purchasing of inputs was expanded at the fastest rate in 37 months, causing inventories of inputs to also rise again, increasing at the second-fastest rate in over three years following May’s survey record rise. Inventories of finished goods at factories meanwhile registered the largest rise for nine months; a rise that was among the greatest in the survey’s 18-year history.
Price pressures rose sharply across both manufacturing and service sectors during June, the former reporting an especially steep increase, and again commonly linked to tariffs.
Manufacturers’ input prices and selling prices both rose at rates not seen since July 2022, as higher costs were passed on to customers. Close to two-thirds of all manufacturers reporting higher input costs attributed these to tariffs, whilst just over half of respondents linked increased selling prices to tariffs.
However, prices also rose sharply in the service sector, likewise often attributed to tariffs but also reflecting higher financing, wage and fuel costs. Service sector input costs and selling prices nonetheless rose at slower rates than in May, in part reflecting more intense competition.
While the slower rates of service sector price inflation helped offset some of the increase in manufacturing prices to bring rates of inflation down from May’s recent peaks, the overall rise in costs was still the second largest since the start of 2023. The rise in prices charged for goods and services was the second highest since September 2022.
Companies took on additional staff at a rate not seen for just over a year largely in response to the need to meet higher workloads. A 12-month high rate of job creation in manufacturing was accompanied by a five-month peak in services.
June saw the largest accumulation of uncompleted work recorded for three years. Higher work outstanding in services were accompanied by the first rise in manufacturing backlogs since September 2022.Companies’ expectations about output in the year ahead dipped slightly in June, remaining well below levels see at the turn of the year (and the surveys’ long-run average). Sentiment was however above April’s two-and-a-half year low.
While trade worries and anxiety around government policies have moderated since April, companies generally remained less upbeat than prior to the inauguration of President Trump. This was especially notable in the service sector, where confidence fell in June amid heightened uncertainty over government policy such as spending cuts. In contrast, manufacturers grew slightly more upbeat, in part reflecting hopes of greater benefits from trade protectionism than service sector counterparts.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“The June flash PMI data indicated that the US economy continued to grow at the end of the second quarter, but that the outlook remains uncertain while inflationary pressures have risen sharply in the past two months.
“Although business activity and new orders have continued to grow in June, growth has weakened amid falling exports of both goods and services. Furthermore, while domestic demand has strengthened, notably in manufacturing, to encourage higher employment, this in part reflects a boost from stock building, in turn often linked to concerns over higher prices and supply issues resulting from tariffs. Such a boost is likely to unwind in the coming months.
“Prices for goods have meanwhile jumped sharply again, the rate of increase accelerating to a three year high as firms pass higher tariff-related costs on to customers. Service providers are by no means immune to this tariff impact and likewise reported another jump in prices, often linked to tariffs on inputs such as food.
“The data therefore corroborate speculation that the Fed will remain on hold for some time to both gauge the economy’s resilience and how long this current bout of inflation lasts for.”
Hard data has so far remained soft amid hardening softy data. Goldman’s view:
We show that in past slowdowns, soft data have tended to signal that the economy is weakening earlier than hard data. In the current environment, the hard data might take even longer than usual to weaken because frontloading of imports and consumer spending ahead of tariffs could support the hard data or—as in the case of the GDP statistics—make them hard to interpret.
But many investors are skeptical of the surveys after they signaled a slowdown that never arrived a few years ago and are only willing to trust the hard data. The hard data have weakened somewhat and have provided some early clues about the impact of tariffs but are unlikely to provide any definitive answers for a while. This leaves survey skeptics with little more than model estimates for now.
(…) We see two main reasons that surveys were misleading a few years ago. First, businesses and consumers were frustrated by high prices, and frustration often came across as pessimism in surveys. Second, in the echo chamber of recession gloom at the time, some business leaders repeated what they heard rather than offering unique insights from their business.
The lesson is to focus on what business leaders are saying about concrete decisions at their own company, not about their impression of the overall economy. Most importantly, we look at what changes they are making to hiring, investment, production, and pricing in response to tariffs and policy uncertainty. (…)
Job openings are roughly unchanged this year for companies whose management teams mentioned tariffs the most during earnings season, but they have fallen sharply at companies with a high reported share of sales to China or Europe—two trading partners that are more likely to retaliate against US exports—and at companies whose management teams highlighted uncertainty as a challenge during earnings season. (…)
Taken together, these early signals suggest only a bit of caution on hiring and look roughly consistent with our expectation that job growth will continue to slow as both labor demand and labor supply decline and that the unemployment rate will rise modestly from 4.2% today to a peak of 4.4%. (…)
A new index of shortages from Fed economists, the New York Fed’s supply availability index, and business survey questions about supplier delivery times also show at most a modest increase in shortages so far. (…) Serious shortages could cause pandemic-style price spikes and production disruptions and are therefore an upside risk to our inflation forecast and a downside risk to our GDP growth forecast.
Companies have so far announced only modestly firmer price increases this year on average, and while business inflation expectations have rebounded more noticeably, they remain far below the pandemic peak. While it is still early, the quite limited increase in our price announcement index mirrors the findings of Cavallo et al. and our impression from the category-level details of recent inflation data that passthrough has been a bit underwhelming so far. Reflecting this, we recently lowered our forecast for core PCE inflation to peak at 3.4%, vs. 3.6% previously.
Beneath the surface, companies with the highest tariff cost exposure have announced more aggressive price hikes. While companies more exposed to policy uncertainty or worried about the uncertainty of the economic outlook have been more restrained in raising prices, perhaps out of fear that consumer demand might weaken, companies with high exposure to broad tariffs have raised prices much more forcefully than the average company.
While it is still too early for companies to have fully announced let alone implemented tariff-driven price increases, surveys from the New York and Atlanta Feds asked companies to provide quantitative answers to questions about how much of the tariff cost increase they intend to pass along eventually.
On average they expect consumers to absorb about 50% of the direct cost of the tariffs. While this is somewhat below our working assumption of 70%, it is possible that it will rise over time if tariffs stay in place. In addition, indirect spillover effects—price hikes by companies protected by tariffs from foreign competition—would add to this and are included in our inflation assumptions, and some companies have also reported raising prices on products whose costs have not been affected by tariffs, another spillover effect that would be additive to our estimates of the total impact on consumer prices.
Surveys from the New York and Dallas Feds also asked companies about the timeline for raising prices. We have assumed that all of the passthrough from tariffs on consumer goods imports to consumer prices will occur within 3-4 months, and that passthrough from tariffs on raw materials, intermediate parts, and capital goods—which raise US production costs and should raise consumer prices eventually—will occur evenly over a year. Businesses have indicated an even faster timeline, which raises the stakes for the upcoming monthly inflation reports.
Overall, early company commentary appears roughly consistent with our forecast that tariffs will have a visible effect that will leave the US economy with slower hiring and a slightly higher unemployment rate, little growth in investment spending this year, below-potential GDP growth but not a recession, and a meaningful but one-time inflation rebound to the mid-3s.
Layoffs From Trump Tariffs Ripple Across the Auto-Parts Industry
(…) “We had forecast to have a lot of work this year,” Morales said. “Now, most companies are pushing back order times. The new building is empty and we have been letting people go.”
What’s happening with SMT and companies like it shows how rapid changes in US industrial policy can roil businesses up and down the supply chain. Trump’s shifting stances on trade and tariffs have upended the planning of many companies that provide parts and equipment to big automakers. Other changes, like Trump’s move to reverse incentives for clean technology including electric vehicles, have left suppliers grappling with sunk costs and struggling to shift gears. (…)
The auto industry built a transnational chain of suppliers in the decades after Bill Clinton signed the North American Free Trade Agreement in 1993, with metals, cars and parts flowing across borders in a finely calibrated economic balancing act. Now, car companies are having to eat the cost of tariffs while trying to decide whether to move production.
As a result, some companies that help GM and other auto giants crank out new cars are suffering. Marelli Holdings Co., a supplier for Nissan Motor Co. and Stellantis NV, filed for Chapter 11 bankruptcy protection this month. Marelli has had problems managing its debt and declining revenue, but it cited tariffs as the blow that sent it to the courts for restructuring. (…)
“Everything is frozen right now, and no one is hiring.” (…)
Other companies have decided they would rather stop producing in the US than deal with the constant flux. French technological equipment supplier Lacroix Group SA said in May that it will leave the North American market, where it employs more than 1,200 people in the US and Mexico. It plans to shutter a factory in Grand Rapids, Michigan, and lay off 115 workers in July, according to a WARN Act filing with the state. (…)
The auto industry employed just over 1 million workers in the US in May, down more than 22,000 jobs from a year ago, according to data from the Bureau of Labor Statistics. (…)
Financing is becoming a problem for some suppliers. When revenue falls, banks start cutting credit lines. (…)
Nearly Two Million Student-Loan Borrowers Are at Risk of Docked Pay This Summer The government is set to start garnishing wages after a pandemic-era reprieve ended
Roughly six million federal student-loan borrowers are 90 days or more past due after a pandemic-era reprieve ended, according to TransUnion. The credit-reporting company estimates that about a third of them, or nearly two million borrowers, could move into default in July and start having their pay docked by the government. That’s up from the 1.2 million that TransUnion had estimated in early May.
An additional one million borrowers are on track to default by August, followed by another two million in September. Borrowers fall into default when they are 270 days past due.
Some borrowers might be having communication issues with their student-loan servicers, while others might be too financially stretched to make payments, said Joshua Turnbull, head of consumer lending at TransUnion.
The Education Department restarted collections on defaulted student loans in May, something it hadn’t done since before the pandemic. The department sent notices to borrowers saying their tax refunds and federal benefits could be withheld starting in June if they don’t take steps to resume payments.
Wage garnishment is also set to restart this summer. Until past due payments are paid in full or the default status is resolved, borrowers could see up to 15% of their wages automatically deducted from their paychecks. (…)
Roughly 43 million borrowers owe more than $1.6 trillion in student-loan debt.
More than nine million of them are expected to see their credit scores drop this year, according to data from the New York Fed released in March.
Trump’s Relentless Fed Pressure Creates Lose-Lose Scenario for Powell Two Fed officials appointed by Trump have become the first to speak out in favor of lowering rates after having supported last week’s decision to hold them steady
President Trump escalated his long-running public attack on the Federal Reserve, creating a lose-lose situation for the central bank as it navigates the risks of higher prices and weaker growth from tariffs.
The assault has little modern precedent and forces the Fed to confront a dreadful choice: It could cut rates sharply as Trump demands and risk fueling inflation that damages its credibility with markets. Or it could maintain its current wait-and-see stance, and face further bullying that would weaken its standing if the economy slows sharply and the administration is validated in its view that inflation shouldn’t be a worry.
The presidential pressure is being applied at the same time that a divide is opening up among Fed policymakers that could further complicate Chair Jerome Powell’s effort to balance political and economic hazards in the months ahead.
Among Fed officials who have spoken since last week’s meeting, the first to signal any appetite to cut rates at the Fed’s next meeting in late July have been the two appointed by Trump in his first term.
Michelle Bowman, the Fed’s vice chair for bank supervision, said in a speech Monday she was more worried about risks of weaker employment than higher inflation—a meaningful shift for a policymaker who was previously highly focused on inflation worries.
Fed governor Christopher Waller said in a CNBC interview on Friday that he could support a rate cut next month because he worries about allowing too much labor-market weakness. (…)
If future central bank leaders feel more compelled to consider political preferences alongside economic data, decades of credibility that anchor global confidence in U.S. monetary policy could be degraded.
On Friday, Trump called on Powell to reduce the central bank’s policy rate, currently around 4.3%, to between 1% and 2% to lower rising costs to service the federal debt. (…)
Since meeting with Powell privately in the Oval Office last month, Trump has unleashed a torrent of insults. “I don’t know why the Board doesn’t override this Total and Complete Moron!” said Trump in a social-media post on Friday. (…)
Powell became Fed chair in 2018 after Trump appointed him, and the president frequently bashed Powell for being too slow to support the economy by lowering interest rates. (…)
Trump acknowledged Friday that “my strong criticism” of Powell “makes it more difficult for him to do what he should be doing.” (…)
Ousting Powell looks less viable than it did a few weeks ago. The Supreme Court went out of its way to signal that the Fed was off limits when it granted Trump’s emergency request last month to fire federal commissioners in the face of a law prohibiting their arbitrary removal.
A second option would be to announce Powell’s successor unusually early, which Trump hinted at doing earlier this month. A so-called “shadow chair” would be designed to undercut Powell by getting markets to place less weight on his forward-looking statements about policy.
It could put the chair-in-waiting in an awkward spot of publicly criticizing his or her future Fed colleagues—whose support will be needed once the new chair takes office—and being judged by market participants as a presidential toady. Alternatively, the shadow chair might defend the Fed’s moves, upsetting Trump and losing the job before even taking office.
The lack of attractive options for dislodging Powell explains why a sustained pressure campaign is likely to continue. The Fed is worried about letting inflation become a problem for a second time in five years. But Trump is balancing out that institutional risk by putting officials on notice that they will be blamed if the economy takes a dive.
“Trump’s broadsides ‘work.’ That’s why he does them,” said Spindel.
New York to Build One of First U.S. Nuclear-Power Plants in Generation Gov. Hochul directs state’s public electric utility to add at least 1 gigawatt of new nuclear-power production
New York intends to build a large nuclear-power facility, the first major new U.S. plant undertaken in more than 15 years and a big test of President Trump’s promise to expedite permitting for such projects.
Gov. Kathy Hochul said in an interview that she has directed the state’s public electric utility to add at least 1 gigawatt of new nuclear-power generation to its aging fleet of reactors. A gigawatt is roughly enough to power about a million homes. (…)
The New York Power Authority may pursue the project alone or in partnership with private entities, Hochul said. (…)
Only five new commercial reactors have come online in the U.S. since 1991, which hasn’t been enough to offset plant retirements. (…)
Nuclear plants currently produce about 19% of the country’s electricity. (…)
Meanwhile, she said, local support for Microsoft’s plan to restart the undamaged reactor at Pennsylvania’s Three Mile Island power plant, suggests that concerns around nuclear safety have eased and confidence in the technology has improved since a partial core meltdown in 1979 set back the industry by decades. (…)
New York is making arrangements with Canadian officials to study efforts in Ontario to build four small modular reactors. Smaller reactors that could be built in a factory setting, one after the next, could in theory drive down costs and overcome one of the industry’s stumbling blocks.
New York officials are also scrutinizing the problems that plagued development of the two newest U.S. reactors at Plant Vogtle in Georgia. Construction began in 2009, and they wound up costing more than $30 billion when they were completed in 2023 and 2024, which was more than twice the initial estimates.