US Manufacturing PMI at 54 Percent: New Orders Up, Price Volatility Remains an Issue

Economic activity in the US manufacturing sector expanded in May for the fifth consecutive month, according to the latest ISM Manufacturing PMI Report. The index registered 54 percent in May, 1.3 percentage points higher than in April and its highest reading since May 2022.

Of the five subindexes that make up the PMI, the New Orders Index indicated faster growth compared with the previous month, the Supplier Deliveries Index stayed the same, the Production Index grew at a faster rate, and the Employment and Inventories indexes remained in contraction, though both improved.

Three of four demand indicators—New Orders, Backlog of Orders, and New Export Orders indexes—were in expansion. The New Orders Index expanded for the fifth consecutive month after four straight readings in contraction, up 2.7 percentage points compared with April’s figure. The Backlog of Orders Index registered 52.2 percent, up 0.8 percentage point compared with April. The New Export Orders Index returned to expansion territory with a reading of 50.6 percent, 2.7 percentage points higher than April.

Regarding output, the Production Index was in expansion for the seventh month in a row, and the Employment Index increased by 2.2 percentage points but remained in contraction. 

Inputs (defined as supplier deliveries, inventories, prices, and imports) were mostly improved month over month. With the same reading as in April, the Supplier Deliveries Index stayed at its highest level since May 2022 at 65.7 percent, indicating slowing performance for the sixth month in a row. The Inventories Index registered 49.9 percent, up 0.9 percentage point, indicating contraction at a slower rate. The Prices Index declined by 2.5 percentage points, and the Imports Index grew at a faster rate.

The May reading of the Production Index, at 54.3 percent, is 0.9 percentage point higher than April’s reading. The Prices Index remained in expansion (or “increasing” territory), registering 82.1 percent, a 2.5-percentage-point decrease from April’s reading. The Employment Index registered 48.6 percent, up 2.2 percentage points from April’s figure of 46.4 percent.

The Customers’ Inventories Index reading of 42.7 percent is 3.6 percentage points higher compared with April, indicating contraction at a slower rate. The Imports Index registered 53 percent, 2.7 percentage points higher than April.

Among comments, the Iran war was mentioned in 42 percent, and tariffs were mentioned in 18 percent; 57 percent of the panelists mentioned pricing volatility as an issue for their companies.

Looking at the manufacturing economy, only 2 percent of the sector’s gross domestic product (GDP) contracted in May, compared with 19 percent in April, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45 percent or lower), was also 2 percent, the same as in April. All six of the largest manufacturing industries expanded in May, in the following order: Computer & Electronic Products; Machinery; Transportation Equipment; Petroleum & Coal Products; Chemical Products; and Food, Beverage & Tobacco Products. 

The 16 manufacturing industries reporting growth in May—listed in order—are: Printing & Related Support Activities; Textile Mills; Nonmetallic Mineral Products; Paper Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Primary Metals; Miscellaneous Manufacturing; Computer & Electronic Products; Furniture & Related Products; Machinery; Transportation Equipment; Petroleum & Coal Products; Chemical Products; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The only industry reporting contraction in May was Wood Products.

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