U.S. Manufacturing PMI Hits 54, Highest in Four Years, but Payrolls Keep Falling and Growth Tied to Stockpiling

The Institute for Supply Management's manufacturing purchasing managers' index reached 54 in May, the highest level in four years. The index expanded for a fifth straight month after the sector spent much of the prior two years in contraction territory. New orders, production and backlogs all strengthened in the May survey.

U.S. manufacturing PMI also climbed to a four-year high, while surveys from the Richmond and New York Federal Reserve districts showed stronger orders and shipments. Peter Navarro, President Trump's senior counselor for trade and manufacturing, said the 54 reading is not the finish line but the opening bell.

Survey respondents cited extreme uncertainty tied to the Iran conflict, escalating fuel costs and supply-chain disruptions. One electrical equipment manufacturer said panic is starting within the industry as customers balk at absorbing higher prices. ISM's prices-paid gauge remained near its highest levels since the 2021-2022 inflation surge.

Input costs stayed stubbornly high. Chris Williamson, S&P chief business economist, said the sector appears to be firing on all cylinders at first glance, but the picture is less clear once stockpiling is examined. He noted that stockpiling was widely evident in May and makes it difficult to gauge underlying demand, as growth will cool once the inventory build ends.

Factory output has improved in recent months but remains close to levels recorded several years ago. Factory payrolls have fallen in 12 of the past 15 months. The manufacturing comeback shows more clearly in business surveys than in hard economic data.