Mixed U.S. Data Keeps Markets Guessing Ahead of Key Jobs Report; ISM Shows Ongoing Manufacturing Contraction

A fresh round of U.S. economic data on Tuesday delivered a murky picture of the country’s economic momentum, with mixed signals from the labor market and manufacturing sector offering little clarity ahead of Thursday’s pivotal nonfarm payrolls report. The ISM Manufacturing Index, long viewed as a barometer for industrial activity and broader growth sentiment, rose slightly in June but remained in contraction territory for a fourth consecutive month.

While the modest improvement in headline numbers could be seen as a stabilizing sign, underlying components and corporate commentary suggest a fragile operating environment. Factor in ongoing tariff uncertainty and persistent inflation in input prices, and the mood remains one of caution rather than conviction.

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ISM Manufacturing: Weak Demand, Cautious Output, Eroding Labor

The ISM Manufacturing PMI ticked up to 49.0 in June from 48.5 in May, slightly beating expectations (48.8) but still indicating contraction. It was the fourth straight month below the expansion threshold of 50 and followed a brief two-month expansion earlier this year. The broader economy, ISM noted, remains in growth mode, but the manufacturing-specific data paints a gloomier picture.

Key components reinforced that message. The New Orders Index, which offers insight into forward demand, fell to 46.4 from 47.6, marking its fifth straight month of contraction. The Employment Index dropped even further, sliding to 45.0 from 46.8. Hiring remains subdued as firms struggle with margin pressure and hesitate to commit to long-term labor costs.

However, the Production Index rebounded sharply to 50.3 from 45.4, returning to expansion territory. This uptick suggests that firms are still producing to meet residual demand or replenish lean inventories, even as forward visibility remains cloudy. Inventories rose to 49.2 but remained below 50, consistent with conservative stocking strategies. Supplier Deliveries moderated to 54.2, indicating easing congestion at ports and improved supply chain efficiency.

The most glaring figure was in Prices Paid, which rose to 69.7 — a level that reflects significant ongoing inflation in input costs. Respondents directly cited tariffs, geopolitical disruptions, and unstable commodity markets as drivers of elevated pricing.

Tariffs Take Center Stage in Corporate Feedback

Beyond the quantitative data, the qualitative commentary in the ISM survey delivered a stark assessment of business sentiment. Tariffs were the most consistently cited issue among respondents, with many executives expressing frustration over erratic trade policy, disrupted global procurement, and deteriorating buyer confidence.

One respondent from the fabricated metal products industry stated bluntly: “Business has notably slowed in the last four to six weeks. Customers do not want to make commitments in the wake of massive tariff uncertainty.” Another respondent in machinery added, “The tariff mess has utterly stopped sales globally and domestically. Everyone is on pause.”

Other themes echoed this caution. Several sectors noted delayed or canceled projects, especially in electric vehicles, with one company projecting 2026–28 technology rollouts now being pushed to 2030. Rising materials costs, volatility in energy inputs, and an inability to plan budgets were all tied back to persistent trade-related disruptions.

JOLTS Surprises to the Upside, but Labor Picture Still Tepid

Elsewhere, the May JOLTS job openings data came in stronger than expected, with 7.769 million openings versus the forecast of 7.3 million. The result suggested that demand for labor remains resilient in some sectors, even as the hiring rate (3.4% vs. 3.5%) and quits rate (2.1%) paint a more tentative labor market.

Analysts noted that this "split-brain" labor market—where job security remains high but job-switching is softening—reflects growing uncertainty among workers and employers alike. As one strategist noted, “It’s easier to keep your job than get a new one right now.”

Other Data: Construction Misses, S&P PMI Diverges

May construction spending was softer than expected, falling 0.3% versus consensus of -0.2%. Private construction declined by 0.5%, while public outlays rose modestly by 0.1%. This points to softness in capital expenditures, particularly in residential and commercial real estate.

In contrast, the S&P Global Manufacturing PMI Final reading surprised to the upside, rising to 52.9—the highest since May 2022. This divergence with the ISM highlights the split between large-cap, global-facing firms (which the S&P measure tends to emphasize) and the more domestically focused manufacturers tracked by ISM.

Outlook: Directionless Data Leaves Fed and Markets in Holding Pattern

In aggregate, Tuesday’s data reinforced the narrative of a slowing—but not collapsing—U.S. economy. Manufacturing activity remains soft, yet there’s enough life in production and job openings to avoid a recession call. The data is unlikely to shift Federal Reserve policy meaningfully ahead of the July meeting, though signs of cooling in labor and persistent tariff-driven price increases will be watched closely.

Investor positioning appears cautious heading into the next batch of jobs data and corporate earnings. As ISM’s Chair Susan Spence put it, the word most frequently echoed by business leaders remains “uncertainty”—and unless tariffs, global conflict, and domestic policy risks stabilize, that mood is unlikely to change.