U.S. manufacturing activity reaches four-year high in May
U.S. factory activity accelerates in May, extending the sector's expansion streak as companies place more orders amid supply disruptions and rising input costs. The gain lifts manufacturing to its strongest reading in four years while inflation pressure and weak hiring continue to weigh on the broader outlook.
Highlights
- U.S. manufacturing activity reaches a four-year high in May as factory demand improves despite ongoing inflation pressure.
- The ISM prices paid index decreases to 82.1 from 84.6 in April, indicating persistent but slightly easing input cost inflation.
- The ISM employment index signals a 32-month contraction streak, with manufacturing payrolls down about 77,000 jobs since January 2025.
Price pressures and labor weakness shape outlook
Factory gate prices continue to rise in May, though the pace eases slightly. The ISM prices paid index slips to 82.1 from 84.6 in April, remaining at a high level as the conflict pushes costs beyond energy goods and adds to broader inflation pressure.Government data reported last week shows inflation increases at its fastest pace in three years in April, eroding household purchasing power. Financial markets therefore expect the Federal Reserve to keep its benchmark overnight interest rate in the 3.50% to 3.75% range into next year.
Despite firmer demand, manufacturing employment stays weak. The ISM employment index records a 32nd straight month of contraction, and the sector continues to manage head counts through layoffs, attrition and unfilled vacancies; manufacturing payrolls have fallen by about 77,000 jobs since January 2025.
Our earlier coverage of the Trump administration’s broad reciprocal tariffs explained how the levies have pushed up prices across many imported consumer goods while also dampening wage growth. We noted that the combination of higher everyday costs and weaker pay gains has intensified household strain and added to public dissatisfaction with the economic outlook.
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