WASHINGTON, June 23 (Reuters) - U.S. manufacturing activity rose again in June as companies preemptively placed new orders in anticipation of shortages and higher prices, but factory employment hit a six-year low, blamed on rising operating costs related to the Middle East conflict.

S&P Global said its flash manufacturing PMI increased to 55.7 this month, the highest reading since May 2022, from 55.1 in May. A reading above 50 indicates growth in manufacturing, which accounts for 9.4% of the economy. Economists polled by Reuters had forecast the manufacturing PMI slipping to 54.8.

The rise combined with an increase in the flash services PMI to 51.3 from 50.7 in May to lift the S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, to 52.2 from 51.5 last month. The increase in the services PMI was partly attributed to the FIFA World Cup tournament, jointly being hosted by the U.S., Canada and Mexico.

The manufacturing PMI has increased for four straight months, in part driven by businesses seeking to restock to avoid shortages and rising prices. 

The U.S.-Israeli war with Iran, now in its fourth month, is straining global supply chains and driving up prices of commodities tied to crude oil as well as aluminum and fertilizers.

The U.S. and Iran last week signed an interim agreement to end the war. On Monday, Vice President JD Vance said talks with Iranian officials in Switzerland ​had laid a "good foundation" for a final peace deal, despite tensions over the Strait of Hormuz and Lebanon. 

Though the hopes for peace helped to restore some confidence among businesses, they were not enough to overcome inflation concerns, with manufacturers dominating job cuts. S&P Global attributed the layoffs to "concerns over the outlook and in response to rising overheads, notably in terms of raw material prices." The survey's measure of manufacturing employment dropped to 47.0, the lowest reading since May 2020, from 51.6 in May.

"Factory job cuts are running at the highest since 2009 if the pandemic is excluded, reflecting concerns over the sustainability of the recent upturn in demand alongside worries over the escalating cost of raw materials," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

PRIVATE SECTOR EMPLOYMENT SUBDUED

Overall private sector employment was subdued for a second straight month. That is in stark contrast with Labor Department data showing private payrolls growth regaining momentum in the last three months. Nonfarm private payrolls averaged 166,000 jobs per month in the three months through May compared to only 62,000 during the same period in 2025. Private surveys have, however, not been a good predictor of the official payrolls count.   

S&P Global's measure of new orders received by factories jumped to a more than four-year high this month. It said the rise was due to "demand being temporarily supported by the front-running of potential supply issues and price hikes associated with the war." The survey's gauge of stock purchases raced to the highest level in 13 months.

Its measure of supplier delivery times lengthened to levels last seen in August 2022. Prior to the war, suppliers were being constrained by President Donald Trump's sweeping tariffs. Though an easing in oil prices from multi-year highs at the start of the Middle East conflict curbed further rises in the cost of inputs, inflation at the factory gate remained elevated.

The survey's measure of prices paid by factories for inputs retreated to 71.2 from 75.3 in May. Manufacturers continued to pass on the costs to consumers, though the pace slowed. The survey's gauge of output prices eased to a still-high 61.0 from 63.1 in May.

The drop was offset by a rise in the services measure, leaving the overall measure of prices received by private sector businesses unchanged at 58.6. The survey's overall gauge of input prices dipped to 62.1 from 62.5 in May. 

The elevated readings align with economists' expectations for high inflation to persist for a while and for the Federal Reserve to raise interest rates this year. The U.S. central bank on Wednesday kept its benchmark overnight interest rate in the 3.50%-3.75% range, but updated quarterly projections showed policymakers expected to raise borrowing costs this year amid growing concerns about inflation.