The ISM Manufacturing PMI fell slightly in June and came in just shy of estimates at 60.6 (61.0 expected, 61.2 in May). Despite this marginal decline in the PMI, the reading above 60 continues the strong expansion that is being felt across the manufacturing sector.

However, digging into the data we see two trends that continue to play out. The eye-watering expansion in Prices Paid (input prices) and a struggle to expand the labor force.

The Prices Paid component increased to 92.1 (from 88.0 in May) which is now the highest on record (beating the 91.4 of January 2008). This reflects the pricing pressures that manufacturers are facing with their raw materials and will certainly raise eyebrows on the FOMC.

However, at the other end of the scale is the struggle to expand the workforce in the manufacturing sector. The Employment component has fallen to 49.9 (below 50 is in contraction). It will be interesting to see if this shows up in Friday’s payrolls data.

If this stagnation of employment is also reflected in the ISM services data then the concerns on the FOMC will only grow about an economy building with inflationary forces but struggling to employ. That is never a great cocktail to move into a tightening cycle.

Market Reaction: For now this reaction has been slightly USD positive with EUR/USD dropping -15/-20 pips initially.