Manufacturing sector continues its slump

There is more worrying data about the health of the manufacturing sector: The industry continues to slide deeper into contractionary territory, despite an economy that is otherwise humming along.

Driving the news: The Institute for Supply Management's manufacturing gauge fell to 46% in June (nearly one percentage point below May's gauge) — the weakest since May 2020. A reading below 50 suggests contracting activity.

Of note: Separate Census Bureau data released Wednesday morning showed factory orders rose 0.3% in May, the same pace as April (which was revised down a tick).

• Excluding transportation shows that orders fell 0.5% in May.

What they're saying: "Demand remains weak, production is slowing due to lack of work, and suppliers have capacity," ISM's Timothy Fiore said in a release.

• "There are signs of more employment reduction actions in the near term," Fiore said, adding that manufacturers used layoffs to manage headcount "to a greater extent than in prior months."

Details: A sub-index of prices paid for materials declined, indicating costs for raw materials fell for a second month — a welcome sign for inflation, though some panelists noted that labor costs remained high.

The bottom line: "Input costs for materials continue to decline," one paper product manufacturer said in ISM's survey.

• "Demand is trending to about 2019 levels, accounting for inflation. The COVID-driven demand has moderated."