By Tom Ozimek
U.S. manufacturing activity climbed in June, fueled by strong domestic demand and tariff-driven stockpiling, according to a new report from S&P Global, which showed an acceleration in both factory output and employment alongside a renewed surge in inflationary pressures.
Released on June 23, the report revealed that the manufacturing output index rose to 51.5 in June, up from 49.4 in May. That marks the first reading above the neutral 50 threshold—which separates expansion from contraction—since February, signaling a return to growth in the factory sector as firms ramped up production and hiring to meet stronger demand.
Hiring accelerated broadly in June, with manufacturing job creation reaching a 12-month high and service-sector hiring hitting its fastest pace in five months as businesses responded to mounting workloads.
Chris Williamson, chief business economist at S&P Global Market Intelligence, attributed some of the demand strength to temporary factors, noting that businesses have been building inventories in anticipation of further price hikes and supply disruptions tied to tariffs.
“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,” Williamson said in a statement, adding that he expects this boost to fade in the coming months.
At the same time, cost pressures intensified. Measures of prices paid by factories for inputs—and charged for finished goods—jumped to levels last seen in 2022. Nearly two-thirds of manufacturers cited tariffs as contributing to higher input costs, while just more than half linked higher selling prices to the same cause.
“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,” Williamson said. “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.”
The Federal Reserve raised interest rates aggressively throughout 2022 and 2023 in an attempt to relieve soaring price pressures. Those actions helped push inflation down from a peak of 9.1 percent in 2022 to 2.3 percent in April—just shy of the Federal Reserve’s 2 percent target. Although the central bank cut rates three times at the end of 2024 as inflation cooled, Federal Reserve Chair Jerome Powell has since signaled a pause, citing lingering uncertainty driven in part by President Donald Trump’s tariff policies.
Trump, for his part, has accused Powell of stifling economic growth by being “too late” to cut rates.
Powell is scheduled to deliver his semiannual monetary policy testimony before Congress on June 24, when he’s expected to face criticism from Trump-aligned lawmakers for not cutting rates more quickly.
“Instead, he will emphasise the importance of the Fed’s independence and that in uncertain economic and political times, it will be the data that determines the path forward for interest rates,” ING analysts wrote in a recent note. “We continue to think that clarity on the inflation story–whether tariffs are a one-off price shock or if they prompt more sustained inflation pressures–may not come before the December [Federal Open Market Committee] meeting, meaning we will see just one rate cut this year.”
Even so, the ING team forecast a bigger, 0.5 percentage-point cut in December if the labor market weakens. By contrast, markets are currently pricing in two quarter-point cuts this year—one in September and a second in October—according to the CME Fed Watch tool, which is based on futures contracts.
The Fed’s benchmark interest rate is currently in a range of 4.25 percent to 4.5 percent.
