Businesses lament Trump tariffs, trucking shortage even as ISM manufacturing index hits 4-month high

Getty ImagesAmerican manufacturers grew in June at the fastest pace in four months, but it'sharder to get supplies delivered on time owing to recent Trump administration tariffs.

The numbers: American manufacturers grew in June at the fastest pace in four months, but they're running into trouble getting supplies delivered on time owing to recent Trump administration tariffs as well as transportation bottlenecks.

The Institute for Supply Management said its manufacturing index rose to 60.2% last month from 58.7% in May. That matches the second highest level of the current economic expansion that began in mid-2009. In February the index hit a 14-year high.

Readings over 50% indicate more companies are expanding instead of shrinking.

What happened: The good news: An index measuring production rose 0.8 percentage points to 62.3%.

New orders and employment were also quite strong, though a touch less so than in May. The index for new orders slipped to 63.5% from 63.7% and the employment gauge fell 0.3 percentage points to 56%.

What's not so good: So-called supplier deliveries rose to a 14-year high, meaning the economy is developing more bottlenecks that could stoke inflation.

Companies have sought to buy materials such as steel and aluminum before tariffs took effect to lock in prices or guaranteed delivery. Yet a mad scramble to do so has played havoc on prices and the timing of deliveries.

Big picture: The economy is in very good shape after nine years of mostly steady expansion. Growth in the second quarter is could reach as high as 5%.

Read: GDP might top 5% in the spring, set 15-year high

The threat of trade war, however, could undercut the economy in the months ahead if tensions worsen or remain unresolved.

Supply delays and difficulty finding enough trucks and trains to move goods could also result in unwanted inflation that puts more pressure on the Federal Reserve to raise interest rates.

What they are saying?: "The Section 232 steel tariffs are now impacting domestic steel prices and capacity. Base steel prices have already increased 20% since March," said an executive at a maker of fabricated-metal products.

"In one line: Strong growth, but supply chains are stretched," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Read: Harley-Davidson isn't riding off to Europe simply because of the Trump tariffs

Market reaction: The Dow Jones Industrial Average DJIA, +0.15% and the S&P 500 SPX, +0.31% fell in Monday trades on persistent worries about the growing threat of a trade war. The victory by a left-leaning candidate in Mexico's presidential election added to the worries.

The 10-year Treasury yield TMUBMUSD10Y, +0.22% dropped a basis point to 2.85%. The rate hit 3% last month amid a pickup in inflation, but it's declined lately to trade tensions.