Dive Brief:
- Manufacturing activity sped up last month to the fastest pace in four years, buoyed by gains in new orders and production and an improvement in employment, the Institute for Supply Management said Monday.
- The ISM’s manufacturing index increased 1.3 points to 54, or four points above the 50-point threshold indicating growth, the ISM said. New orders rose to the highest level in four months.
- “All six of the largest manufacturing industries expanded in May,” with the top three including computers and electronics, machinery, and transportation equipment, Susan Spence, chair of the ISM manufacturing business survey committee, said in a statement. All categories underlying the index “headed in a direction that suggests sustained growth,” she said.
Dive Insight:
The report of solid manufacturing activity highlights how economic growth has so far overcome the shocks of high tariffs and the Iran war.
“Crosswinds are buffeting the U.S. economy this year — of course the Iran War, but also the AI boom, the fiscal stimulus package passed last year, and the Fed’s rate cuts passed in late 2025,” Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said in a statement.
“The net effect of these crosswinds is an economy that continues to grow at a good clip, but with quite uneven distribution across sectors,” he said.
The policy and investment shifts have lifted defense, aerospace and semiconductor companies, and the bonus depreciation clause in the 2025 tax bill has spurred demand for capital equipment, Adams said.
“Also, the backlog of business decisions delayed in 2025 because of tariff uncertainty looks like it is starting to flow through to purchases and production,” he said.
The economy will likely grow during the second quarter at an annual rate of 3%, the Atlanta Fed estimated on Monday.
Still, just one out of four comments by a panel of manufacturing executives were positive last month, and 69% were negative, Spence said.
“The Iran war was mentioned in 42% [of comments] and tariffs in 18%,” she said. “Fifty-seven percent of the panelists mentioned pricing volatility as an issue for their companies.”
Only half of the panelists said their companies are hiring, Spence said, underscoring the trend in subdued employment and blurry economic landscape.
“The current atmosphere is one of extreme uncertainty and concern for the future in terms of both price stability and longer-term supply continuity related to the Iran conflict and Strait of Hormuz closure,” a manufacturing executive said, according to ISM.
“We have a lot of negotiations in process related to requested price increases, some related to oil prices and some still fallout from the 2025 tariff/geopolitical climate,” the executive said.
Rising prices were a leading worry among panelists last month.
The personal consumption expenditures index — a gauge of price pressures monitored by the Federal Reserve — increased in April at a 3.8% annual rate, the fastest pace since May 2023, the Bureau of Economic Analysis said Thursday.
“Prices continue to rise for many products — some due to increase in data center creation for electronic components, others as a result of the Iran war and reductions in availability of oil/petroleum,” a computer and electronics executive said, according to ISM.
