US Manufacturing PMI Hits Four-Year High as Iran Conflict Drives Costs Higher
US manufacturing expanded at its fastest pace in four years in May, with the Institute for Supply Management's PMI rising to 54.0, according to Bloomberg.
The result beat analyst forecasts of 53.0 and marked the fifth straight month of sectoral expansion, per Reuters.
Nearly every manufacturing industry posted gains in May, including printing, textiles, electrical equipment, and plastics.
New orders climbed to 56.8 in May, a four-month high, according to The Wall Street Journal. They rose from 54.1 in April.
AI investment, more favorable tax provisions, and reduced trade policy uncertainty have anchored much of the sector's recent strength, per Bloomberg.
Some of that momentum reflects front-loading, with companies stockpiling goods ahead of price increases tied to the Iran conflict and its disruption to global shipping.
Cost Pressure Is the Central Risk
The ISM's prices-paid index edged down to 82.1 in May, per Reuters. April's reading of 84.6 was the highest since April 2022.
That relief at the factory level is modest at best. The Fed's preferred inflation gauge rose 3.8% year-over-year in April, the fastest pace since 2023, per Bloomberg.
Financial markets now expect the Fed to hold its benchmark rate in the 3.50%–3.75% range into next year, per Reuters.
Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said most improvement in new orders reflects pent-up demand rather than inventory building, per Bloomberg. She warned that persistent high prices from the conflict could eventually weigh on that demand.
A supplier deliveries index held at 60.6, signaling continued supply chain delays linked to the war, per Reuters.
Manufacturing employment extended its contraction streak to 32 straight months in May, per Reuters. The sector has shed roughly 77K jobs since January 2025.
Higher prices were reported by 66.3% of survey respondents in May, per The Wall Street Journal. That's down 4 percentage points from April's 70.3%.
Bloomberg Economics offered a more constructive read. It noted that demand for manufactured goods is outpacing supply, and that declining inventories point to a solid production outlook in the months ahead.
Whether that optimism holds depends heavily on how quickly the Middle East conflict resolves and whether energy costs give producers room to breathe.
