Key Takeaways

  • The Institute for Supply Management (ISM) said Monday that manufacturing activity accelerated to its fastest pace in four years in May, driven by growth in new orders, production, and employment.
  • The ISM manufacturing index rose 1.3 points month-over-month to 54, sitting 4 points above the 50-point breakeven line. New orders climbed to their highest level in four months.
  • "All six major manufacturing industries expanded in May," said Susan Spence, chair of the ISM Manufacturing Business Survey Committee, in a statement, with computer and electronic products, machinery, and transportation equipment leading the pack. She said all sub-indices under the index "point in the direction of continued growth."

Deeper Insights

The solid report on manufacturing activity highlights that economic growth has so far overcome the shocks from high tariffs and the war with Iran.

"The U.S. economy is being hit by multiple crosswinds this year - including, of course, the war with Iran, but also the AI boom, the fiscal stimulus package passed last year, and the rate cuts implemented by the Federal Reserve in late 2025," said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, in a statement.

"The net effect of these crosswinds is that the economy continues to grow at a decent pace, but the distribution across industries is quite uneven," he said.

Adams noted that policy and investment shifts have boosted defense, aerospace, and semiconductor companies, while the bonus depreciation provision in the 2025 tax bill has also stimulated demand for capital equipment.

"In addition, the backlog of business decisions postponed in 2025 due to tariff uncertainty appears to be starting to translate into purchases and production," he said.

The Atlanta Fed estimated Monday that second-quarter economic growth could reach an annualized rate of3%。

Despite this, Spence said that among the comments from the manufacturing executive panel last month, only a quarter were positive, with 69% negative.

"42% of the comments mentioned the war with Iran, and 18% mentioned tariffs," she said. "57% of panel members cited price volatility as an issue facing their companies."

Spence said only half of the panel members indicated their companies were hiring, highlighting the sluggish employment and unclear economic outlook.

"The current atmosphere is filled with extreme uncertainty and concern about the future, involving price stability and long-term supply continuity related to the conflict with Iran and the closure of the Strait of Hormuz," one manufacturing executive said, as quoted by ISM.

"We are negotiating many requests for price increases, some related to oil prices, and others still a residual effect of the 2025 tariff/geopolitical climate," the executive said.

Last month, rising prices were one of the main concerns among panel members.

Data released Thursday by the U.S. Bureau of Economic Analysis showed that the personal consumption expenditures (PCE) index, the Federal Reserve's preferred measure of price pressures, rose at an annualized rate of 3.8% in April, marking thefastest pace since May 2023。

"Prices for many products continue to rise - partly due to increased demand for electronic components from data center construction, and others as a result of the war with Iran and reduced supply of oil and petroleum products," one computer and electronics executive said, as quoted by ISM.