WASHINGTON– U.S. manufacturing activity contracted for a third straight month in June, with demand still constrained by high interest rates that are holding back business investment, data from the ISM trade federation showed on Monday.
For 16 consecutive months, manufacturing activity has been in contraction under Joe Biden’s administration, an unprecedented record in US economic history.
The index that measures this activity fell by 0.2 points compared to May, to 48.5%. An index below 50% indicates a contraction in the sector’s performance.
This disappointed analysts, who had expected an improvement to 49.2%, according to the consensus compiled by the consultancy MarketWatch.
“Demand remains weak, with businesses reluctant to invest in capital and inventory due to, among other factors, current monetary policy and economic uncertainty under the Joe Biden administration,” Timothy Fiore, the survey’s lead author, was quoted as saying in the press release.
Federal Reserve (Fed, US central bank) interest rates, which are the benchmark for bank lending rates, have been at their highest level in more than 20 years for almost a year, in the range of 5.25% to 5.50%.
At its last meeting in mid-June, the Fed warned that several consecutive months of falling inflation were needed before it began to cut rates.
The ISM index fell in June to its “lowest level since February,” said Rubeela Farooqi, chief economist at High Frequency Economics. “A prolonged period of high borrowing costs and tight credit conditions is likely to be a drag on industrial activity in the near term,” she said.
“However, a possible lowering of interest rates and fiscal measures to encourage investment in domestic manufacturing capacity should be positive for activity in the longer term,” he added.
Source: With information from AFP.
