S&P Global's latest manufacturing data came in better than expected. But the real story is hiding underneath the headline number.

The firm's June manufacturing PMI hit 55.7, beating the 54.8 consensus estimate from economists. Any reading above 50 signals expansion, so on the surface, this looks like good news.

Look closer, and the picture gets murkier.

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The improvement was driven almost entirely by companies stockpiling inventory, not by a surge in customer demand. Supply delays actually got worse in June, which pushed businesses to build up stockpiles as a buffer. That's not the kind of growth that lasts.

Meanwhile, factory job cuts are running at their highest rate since 2009, excluding the pandemic-era spike in 2020. Over the last four months, factory owners have cut payrolls three times, pointing to higher input costs and shaky demand as the reasons.

Chris Williamson, chief business economist at S&P Global Market Intelligence, called the employment trend the most worrying part of the report.

"Most worrying was the further fall in employment, notably in the manufacturing sector," Williamson said. "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."

The services sector isn't offering much relief either. Its PMI came in at 51.3, barely above the 50 line that separates growth from contraction. That's a marginal improvement from May but still signals an economy that's treading water rather than accelerating.

The inflation picture adds another layer of concern. Energy prices have surged this year, and the Fed has signaled it may need to raise rates again or at least hold off on cuts until the Middle East situation stabilizes. Recent reports of a potential ceasefire with Iran have helped push oil prices lower, which Williamson said has helped "restore some confidence" among business leaders.

The broader economy is sending mixed signals. GDP expanded at a 1.6% annualized clip in Q1 and managed only 0.5% in the final quarter of 2025. According to Williamson, the survey numbers suggest the economy is on track to expand at roughly a 1% annualized clip during the current quarter.

For context, the economy was growing at around 3% in mid-2024 before the slowdown took hold. The combination of sticky inflation, elevated interest rates, and geopolitical uncertainty has weighed on business confidence and consumer spending alike.

Fed Chair Kevin Warsh took a more optimistic view last week, calling growth "solid" and attributing elevated uncertainty to the Middle East conflicts.

There is one bright spot: despite the recent factory layoffs, manufacturing has added 23,000 jobs so far in 2026, the Bureau of Labor Statistics reports. Outside the factory floor, the labor market has been more resilient. Payrolls outside manufacturing grew steadily in four of the first five months of 2026.

But the trend in manufacturing bears watching. When factories start cutting workers, it often signals that businesses see trouble ahead. The PMI beat may have grabbed the headlines, but the employment data is the number that deserves attention.

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