In May, U.S. manufacturing activity surged to its highest level in four years, according to the Institute for Supply Management (ISM). The manufacturing Purchasing Managers’ Index (PMI) rose to 54.0, up from 52.7 in April, indicating expansion in the sector. This growth was largely fueled by businesses accelerating orders in response to rising prices and shortages caused by the ongoing U.S.-Israeli conflict with Iran, which has disrupted key shipping routes like the Strait of Hormuz.
Impact of Global Conflict
The closure of the Strait of Hormuz has significantly affected the shipping of essential commodities, leading to increased prices for energy, aluminum, and fertilizers. Despite these challenges, the manufacturing sector has shown resilience, growing for five consecutive months, partly due to a surge in spending on artificial intelligence technologies.
New orders in the manufacturing sector increased, with the ISM’s new orders index climbing to 56.8 from 54.1 in April. Backlog orders and exports also saw a rise, reflecting the sector’s robust demand despite supply chain constraints.
Supply Chain and Employment Challenges
Supply chain issues remain a significant hurdle, as evidenced by the supplier deliveries index holding steady at a high 60.6, indicating slower deliveries. These challenges are compounded by the aftermath of last year’s tariffs, which were overturned by the U.S. Supreme Court in February. The current administration has reinstated some duties, arguing they are essential for revitalizing domestic manufacturing.
Factory employment, however, continues to struggle. The ISM’s employment index recorded its 32nd month of contraction, with manufacturing jobs declining by approximately 77,000 since January 2025. This trend highlights ongoing challenges in workforce management, with companies opting for layoffs and attrition over new hiring.
Inflation and Economic Outlook
Inflation remains a pressing concern, with prices at the factory gate continuing to rise, albeit at a slightly slower pace. The ISM’s prices paid index decreased to 82.1 from 84.6 in April, still reflecting significant inflationary pressures. The Federal Reserve is expected to maintain its interest rate range of 3.50%-3.75% into next year, as it navigates the complexities of soaring inflation and its impact on household purchasing power.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
