Two major manufacturing gauges showed stronger factory activity in May, though analysts said some of the increase may reflect inventory building tied to concerns over prices, supply chains and the war with Iran.
By yourNEWS Media Newsroom
U.S. manufacturing activity rose in May to its strongest level in four years, with new orders and production expanding as factories reported broader demand across nearly every major industry category.
The Institute for Supply Management said its manufacturing index increased 1.3 points to 54, the highest reading since May 2022. The result exceeded the top forecasts in Econoday’s survey of economists, whose median estimate called for a reading of 53.4%.
Readings above 50 in the purchasing managers index indicate growth in the manufacturing sector. Readings above 47 typically signal expansion in the broader economy.
The report showed that demand continued to improve. ISM’s new orders index, a closely watched measure of future factory activity, rose 2.7 percentage points to 54.3% in May, marking the fifth straight month of expansion. The production index also remained in growth territory, rising nine-tenths of a point to 54.3% for its seventh consecutive monthly expansion.
The employment measure improved by 2.2 percentage points but remained below the threshold for expansion. ISM said about half of companies responding to the survey reported hiring, while the other half said they were managing headcount.
The gains were broad-based across the manufacturing sector. Sixteen of the 17 subsectors tracked by ISM reported growth in May, including printing, textiles, electronic equipment and appliances. Wood products was the only category to contract.
Input prices continued rising, though ISM’s prices index declined from April. Imports and exports both expanded during the month.
Inventories rose to a one-year high, a development that may reflect precautionary stockpiling by companies concerned about supply-chain disruptions linked to the war with Iran.
A separate report from S&P Global also showed a stronger manufacturing sector in May, describing the improvement as “sharp and stronger.” The firm said new orders increased and output growth reached its strongest level since October 2022.
Still, S&P Global cautioned that part of the increase may be tied to inventory building rather than only stronger final demand.
“At first glance, the manufacturing sector seems to be firing on all cylinders but lift the hood and the picture is not so clear,” Chris Williamson of S&P Global said. “The headline PMI has hit a four-year high, with strong factory production growth for a second successive month in response to a further marked upturn in order books, but since the outbreak of war in the Middle East we have seen production and demand buoyed by stock building as companies worry over rising prices and supply difficulties.”
S&P Global said manufacturers faced a sharp increase in input costs, with prices rising at the fastest pace in nearly four years. Supplier delivery times also worsened by the most since August 2022, pointing to renewed pressure in supply chains.
The S&P report differed from ISM’s employment findings, showing hiring growth at its strongest level in five months. Even so, S&P described the pace of job creation as “only modest.”
Together, the two reports showed a factory sector gaining momentum in May, supported by stronger orders and output, while manufacturers continued to navigate higher costs, uneven hiring and concerns about supply disruptions.
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