Manufacturing Activity Shrank in May for Third Straight Month
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U.S. factory activity contracted in May for a third consecutive month and a gauge of imports fell to a 16-year low as firms pulled back in the face of higher tariffs.
The Institute for Supply Management’s manufacturing index edged down 0.2 point last month to 48.5, according to data released June 2. Readings below 50 indicate contraction.
Two of the report’s trade-related indexes highlighted the widespread uncertainty caused by the uneven rollout and frequent changes in tariffs. The ISM’s import measure dropped 7.2 points, one of the largest monthly slides on record, to 39.9.
That marked a departure from earlier this year when some firms were importing more to get ahead of tariffs. The gauge of exports fell to the lowest level in five years, possibly a reflection of retaliatory tariffs from other nations on U.S. producers.
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“We still feel that the economy overall over a longer period of time is still in expansion,” Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said on a call with reporters. “We are really hopeful that the tariff uncertainties can come to a conclusion, and that the purchasing managers that are working so hard to deal with this whiplash can focus on the normalness of what their job should be.”
Seven industries reported contraction in May, led by paper products, wood and printing. Seven industries, including plastics and rubber, nonmetallic minerals and petroleum, expanded.
The ISM factory inventories index showed the largest contraction in four months, while a gauge of customer stockpiles fell to the lowest level since March 2024.
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“Increases in factory activity were offset by shrinking inventories of raw materials. That may correspond to a pull-forward of activity while tariffs were paused, but customer inventories are also low, setting the stage for a future increase in orders,” said Stuart Paul, economist at Bloomberg Economics.
The confusion over evolving trade policy is also making it difficult on supply managers to efficiently source goods and materials. The ISM’s supplier deliveries index climbed to the highest level since June 2022, indicating extended delivery times.
The report also showed the fallout on demand from higher duties. Bookings contracted for a fourth month, and order backlogs shrank at the slowest pace since September 2022.
(Bloomberg)
Select ISM Industry Comments
- “There is continued softening of demand in the commercial vehicle market, primarily related to higher prices and economic uncertainty. The impact of ever-changing trade policies of the current administration has wreaked havoc on suppliers’ ability to react and remain profitable.” — Transportation Equipment
- “Tariffs, avian influenza and broader commodity markets continue to impact business conditions.” — Food, Beverage & Tobacco Products
- “Government spending cuts or delays, as well as tariffs, are raising hell with businesses. No one is willing to take on inventory risk.” — Computer & Electronic Products
- “Most suppliers are passing through tariffs at full value to us. The position being communicated is that the supplier considers it a tax, and taxes always get passed through to the customer. Very few are absorbing any portion of the tariffs.” — Chemical Products
- “Tariff uncertainty is impacting new international orders.” — Fabricated Metal Products
- “There is continued uncertainty regarding market reaction to the recently imposed tariffs and resulting actions by other countries.” — Machinery
- “The administration’s tariffs alone have created supply chain disruptions rivaling that of COVID-19.” — Electrical Equipment, Appliances & Components
- “We have entered the waiting portion of the wait and see, it seems. Business activity is slower and smaller this month. Chaos does not bode well for anyone, especially when it impacts pricing.” — Primary Metals
- “Uncertainty due to the recent tariffs continue to weigh on profitability and service. An unresolved (trade deal with) China will result in empty shelves at retail for many do-it-yourself and professional goods.” — Paper Products
Government figures last week showed consumer spending barely rose in April after the weakest quarter in nearly two years. Some companies are also pausing investment plans due to the uncertainty surrounding the frantic implementation of additional tariffs.
The survey also indicated higher materials costs remain an issue for producers. The group’s price measure was little changed at a still-elevated 69.4.
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