Economic activity in the U.S. manufacturing sector expanded in May for the fifth consecutive month to 54%, 1.3 percentage points higher than April and the highest reading since May 2022, according to the Institute for Supply Management’s latest Purchasing Managers’ Index.
The overall economy grew for the 19th month in a row, ISM reported. A PMI index below 50% indicates an industry in contraction.
The S&P Global US Manfacturing PMI showed a slightly higher rate of expansion, registering 55.1, up from 54.5 in April.
“Not only are we in the fifth month of expansion, but the indices are all going in the right direction,” Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said during a media call on Monday.
“In May, 25% of the comments were positive and 69% negative, with a 1-to-2.7 ratio of positive to negative sentiment,” Spence said in a news release. “Among comments, the Iran war was mentioned in 42% and tariffs in 18%.” She added that 57% of panelists mentioned pricing volatility as an issue for their companies.
The New Orders Index expanded for the fifth consecutive month after four straight readings in contraction, registering 56.8%, up 2.7 percentage points compared to April’s figure of 54.1%. The Production Index registered 54.3%, 0.9 percentage point higher than April’s reading of 53.4%.
The Supplier Deliveries Index indicated slowing performance for the sixth month in a row after one month in “faster” territory. The reading of 60.6% reached its April figure after the index increased in each of the previous five months.
The Inventories Index registered 49.9%, up slightly from April’s reading of 49%.
The Employment Index registered 48.6%, up 2.2 percentage points from 46.4% in April. Manufacturing lost a net 2,000 jobs in April, with the transportation equipment sector losing the most jobs at 3,600. ISM said that among panelists, 50% indicated that managing head counts remains the norm at their companies, while 50% are hiring.
The Prices Index remained in expansion, registering 82.1%, a 2.5-percentage point decrease from April’s reading of 84.6%.
The New Orders Index expanded in April with a reading of 54.1%, up 0.6 percentage point from March. However, Spence said that according to a number of the positive comments, “customers were ordering to get ahead of” potential price increases from the war and additional tariffs.
Three of four demand indicators — New Orders, Backlog of Orders and New Export Orders indeces — were in expansion in May. The Customers’ Inventories Index remained in “too low” territory, contracting at a slower rate, ISM said. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.
War remains a concern
All six of the largest manufacturing industries — computer & electronic products; machinery; transportation equipment; petroleum and coal products; chemical products; and food, beverage and tobacco products, in that order — expanded in May, ISM said.
During the call, Spence said the war in Iran is the primary factor holding back the manufacturing sector at this point.
“Things are looking good for now,” she said. “But if we could see an end to this war, we could really take off.”
Many commentators also cited the war in Iran as their chief point of concern, with one commentator in the transportation equipment sector saying that the conflict is “starting to directly and negatively impact cost of supply chain.” Others cited shipping delays, higher fuel and raw material prices and general market uncertainty.
Spence said the U.S. Supreme Court’s ruling overturning many of the Trump administration’s original tariffs under the International Emergency Economic Powers Act has provided some relief for manufacturers. However, the tariff refund process remains opaque.
“Confusion abounds around tariff refunds,” said one commentator in the Food, Beverages & Tobacco Products sector. “We purchase many imported goods but in most cases are not the importer of record, so it is currently unclear to what we may be entitled.”
Despite these headwinds, Spence was upbeat about overall manufacturing industry trends on the call. “Even though employment is still in contraction and prices are still increasing, both of them are going in the right direction,” she said.
