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US Manufacturing Output Contracts For First time Since 2020, Service Growth Dramatically Slows

According to S&P, the US economy slowed sharply in June amid renewed downturn in demand, but inflationary pressures cool.
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US PMI Copposite 2022-06

Please consider the June S&P Global Flash US Composite PMI™ from the S&P, formerly Markit. Data were collected 13-22 June

Key Numbers

  • Flash US PMI Composite Output Index at 51.2 (May: 53.6). 5-month low. 
  • Flash US Services Business Activity Index at 51.6 (May: 53.4). 5-month low. 
  • Flash US Manufacturing Output Index at 49.6 (May: 55.2). 24-month low. 
  • Flash US Manufacturing PMI at 52.4 (May: 57.0). 23-month low. 

Key Points

  • Although service providers continued to indicate a rise in output, it was the weakest increase for five months.
  • Manufacturers' factory production fell to a degree only exceeded twice in the 15-year history of the survey, at the height of the initial pandemic lockdowns in 2020 and the height of the global financial crisis in 2008.
  • New export orders contracted at the steepest pace since June 2020 as foreign customers paused or reduced new order placements due to inflation and supply chain disruptions.  
  • Inflationary pressures remained marked in June, as input costs and output charges rose substantially again. Although the pace of input price inflation eased to the slowest for five months, it was sharper than any seen before April 2021. Alongside food, fuel, transportation and material price hikes, firms often mentioned that wages had increased to entice workers to stay, which added pressure to operating expenses.

Chris Williamson, S&P Chief Business Economist, Comments 

  • “The pace of US economic growth has slowed sharply in June, with deteriorating forward-looking indicators setting the scene for an economic contraction in the third quarter. The survey data are consistent with the economy expanding at an annualized rate of less than 1% in June, with the goods-producing sector already in decline and the vast service sector slowing sharply." 
  • "Business confidence is now at a level which would typically herald an economic downturn, adding to the risk of recession."
  • “A corollary of the drop in demand was less pressure on prices, with the survey’s inflation gauges for firms’ costs and their selling prices falling sharply in June to suggest that, although still elevated, price pressures have peaked.

Recession Has Arrived 

By the July FOMC meeting, the Fed will likely realize (but not admit) recession, then hike another 75 basis points anyway. 

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At today's Congressional hearings I noted Powell Pledges to Beat Inflation Even If it Causes Recession and Job Losses

Fed Chair Jerome Powell is on a mission to prove he is the second coming of Paul Volcker.

For now, that's likely the correct, but very late, thing to do. Tack on another point as the market expects and I think we have a policy error in the opposite direction. 

I've Seen Enough, the US is in Recession Now, Q&A on Why

In case you missed it, please see I've Seen Enough, the US is in Recession Now, Q&A on Why

This post originated at MishTalk.Com.

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