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In June, the Institute for Supply Management (ISM) Manufacturing Index decreased to 49.7 from May's 53.5 reading, according to the ISM. June's reading was worse than the anticipated reading of 52.0, and reached the lowest level since mid-2009.

Readings below 50.0 indicate sector contraction. So, June's decline in the Index was likely bearish for the manufacturing sector. This decline may also have negative implications for general US economic growth. After the ISM's 10:00 a.m. ET data release, U.S. equity markets responded negatively.

The ISM Manufacturing Index is based on data compiled from U.S. purchasing and supply executives. The Index measures new orders, backlogs of orders, new export orders, imports, production, supplier deliveries, inventories, customers' inventories, employment and prices.

According to the ISM's report, the PMI's 49.7 percent reading indicated contraction in the manufacturing sector for the first time since July 2009, when the PMI hit 49.2 percent.

The New Orders Index dropped 12.3 percentage points in June, registering 47.8 percent and indicating contraction in new orders for the first time since April 2009, when the New Orders Index registered 46.8 percent.

In addition, the Production Index registered 51 percent, and the Employment Index registered 56.6 percent. The Prices Index for raw materials decreased significantly for the second consecutive month, registering 37 percent, which was 10.5 percentage points lower than the 47.5 percent reported in May.

“Comments from the panel range from continued optimism to concern that demand may be softening due to uncertainties in the economies in Europe and China,” said Bradley Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee, in a statement.

Traders who believe that the ISM Manufacturing Index's June reading is a leading indicator for the US economy, might want to consider the following trades:
  • Short general industrial companies like Illinois Tool Works (NYSE: ITW) or Caterpillar (NYSE: CAT) as these companies could hurt from decreasing industrial production.
  • Short industrial commodities like crude oil (NYSE: USO) or copper (NYSE: JJC).
  • Long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because, even if less people remain in the workforce, consumers would still likely need to buy staple products like shampoo and toothpaste.
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