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US manufacturing solid in June but trade fears persist: ISM

2 min

New York (AFP)

US demand remains robust, helping to keep the manufacturing sector growing solidly in June, but concerns about trade policies, rising prices and dwindling labor weighed on industry, according to an industry survey on Monday.

Companies surveyed were "overwhelmingly" concerned about President Donald Trump's confrontational trade policies, saying the uncertainty made planning difficult, and noting rising prices as a result of tariffs on steel and aluminum, or plans to shift production to other countries to avoid retaliatory tariffs.

The Institute for Supply Management's closely-watched Purchasing Managers Index for US manufacturing defied expectations by increasing 1.5 points to 60.2 percent, above the 12-month average and contrary to economists' consensus forecast for a slight decline to 58.5 percent.

"Demand remains robust but the nation's employment resources and supply chains continue to struggle," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

"Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business," Fiore said in a statement.

The trade tensions and tariffs are stoking the price pressures seen for more than two years, although the price index slowed for the first time since late last year, according to the survey. The price index fell 2.7 points to 76.8 percent last month but has showed rising prices for 28 consecutive months.

"Although this report was stronger than expected it had a marked inflationary feel about it as delivery delays soared," RDQ Economics said in a research note, pointing to the supplier deliveries index which jumped six points compared to May to the highest since May 2004.

- Rocky road ahead? -

Mickey Levy of Berenberg Capital Markets notes the supplier delivery measure was the second highest since 1979.

In addition to rising prices, Fiore said "shortages continue in aluminum, electronics components, steels, steel-based products, electrical components and freight," and all 18 industries reported paying increased prices for raw materials in June.

One firm from the electrical equipment and appliances sector said "US tariff policy and lack of predictability, along with [the] threat of trade wars, [is] causing general business instability and [is] drag on growth for investments."

Companies also continue to report difficulty filling open positions, which is contributing to transportation backlogs. The employment index was down three-tenths to 56 percent.

The index for new orders slipped while production jumped, with both continue to expand strongly.

Levy said strong demand, tax cuts, strong corporate profits and deregulation "are to this point allowing businesses to overcome supply chain bottlenecks, rising prices, and global trade uncertainties."

However, he warned, "the build-up of risks point to a rockier road ahead."

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