Why This Matters to Distributors: Manufacturing demand continued to support industrial distribution in June as new orders, production and inventories remained in expansion. However, persistent tariff uncertainty, elevated metals prices and geopolitical risks continue to complicate purchasing decisions and inventory management for distributors.
U.S. manufacturing expanded for the sixth consecutive month in June, although growth slowed from May as new orders and production moderated and manufacturers continued to navigate tariffs, higher material costs, and geopolitical uncertainty, according to the Institute for Supply Management.
The ISM Manufacturing Purchasing Managers Index registered 53.3% in June, down 0.7 percentage points from 54.0% in May but remaining above the 50% threshold that signals expansion. The report also marked the 20th consecutive month of growth for the broader U.S. economy.
Demand remained healthy despite the slower pace. The New Orders Index registered 56.0%, down from 56.8% in May, while the Production Index declined to 52.2% from 54.3%. Both measures remained in expansion territory, indicating manufacturers continue to increase output even as growth moderates.
Inventory trends were encouraging for distributors. The Inventories Index returned to expansion to 51.4%, up from 49.9% in May, while the Customers’ Inventories Index fell to 42.3%, suggesting manufacturers still view customer inventories as too lean to meet future demand. Historically, low customer inventories have supported additional production and replenishment activity.
Employment remained the report’s weakest component. The Employment Index improved to 49.7% from 48.6% but remained below the expansion threshold for the 33rd consecutive month. ISM said manufacturers are hiring more selectively, with two-thirds of survey respondents reporting they added workers during June, a reversal from earlier this year when workforce reductions were more common.
Input cost inflation eased but remained elevated. The Prices Index declined to 73.0% from 82.1%, its largest monthly drop since July 2022. Even so, manufacturers continued to report higher prices for steel, aluminum, copper, petroleum-based products, and freight. Respondents attributed much of the cost pressure to tariffs and the recent conflict in the Middle East.
Trade activity weakened during the month. The New Export Orders Index slipped back into contraction at 48.5%, while the Imports Index remained in expansion at 52.9%, indicating manufacturers continued replenishing inventories despite softer international demand.
Five of the six largest manufacturing industries expanded in June, led by computer and electronic products, machinery, transportation equipment, chemical products, food, beverage, and tobacco products. Petroleum and coal products were the only major industry to contract. Overall, 14 of the 18 manufacturing industries tracked by ISM reported growth during the month.
Survey respondents said tariffs and geopolitical uncertainty continued to influence purchasing decisions. Many manufacturers reported diversifying suppliers, adjusting inventory strategies, and delaying capital spending while monitoring developments in global trade policy and the Middle East.
For distributors, the report points to continued strength in industrial demand entering the second half of the year. While manufacturers remain cautious about hiring and capital investment, expanding new orders, growing inventories, and easing inflationary pressures suggest the industrial economy continues to recover despite ongoing trade and geopolitical headwinds.
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