American manufacturers grew for a fifth straight month in May, yet business leaders remain anxious about tariffs and the Iran war.
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US factory activity hits 54.0 in May, best streak since 2022
American manufacturers grew for a fifth straight month in May, yet business leaders remain anxious about tariffs and the Iran war.
The Institute for Supply Management's manufacturing index rose to 54.0% in May from 52.7% in April, the highest reading since May 2022 and the fifth consecutive month of expansion — the longest winning streak in four years.
"Pent-up demand was one of the big drivers behind the increase in new orders," Susan Spencer, chair of the ISM manufacturing survey, said. New orders climbed to a four-month high of 56.8.
Production edged higher while a gauge of employment remained negative for the 32nd straight month, though it has shown signs of improvement. A measure of prices stayed near a four-year high, reflecting higher oil costs and scattered supply disruptions tied to the Iran conflict and the closure of the Strait of Hormuz.
The data presents a mixed picture for the Federal Reserve: manufacturing expansion supports the case for holding rates steady, but rising input costs tied to the Iran war complicate the inflation outlook. "The current atmosphere is one of extreme uncertainty and concern for the future in terms of both price stability and longer-term supply continuity related to the Iran conflict and Strait of Hormuz closure," one senior executive told the ISM.
Tariff Uncertainty Clouds the Outlook
The Trump tariffs, whose legal status remains unsettled, add another layer of risk. Companies report that customers are resisting further price increases and are cautious about order volumes. "We remain cautiously optimistic that if global economic factors stabilize and the Iran conflict ends, we can continue with increased sales and maintain acceptable margins," a senior executive at a chemical manufacturer told ISM.
AI Investment Fuels the Upside
A boom in capital spending on artificial intelligence has been a key driver of manufacturing demand, particularly for semiconductors and industrial equipment. If the Iran conflict ends and tariff levels become more settled, the industry could experience a prolonged expansion, Spencer said.
The Dow Jones Industrial Average and S&P 500 edged lower Monday but remained near record highs, reflecting the market's struggle to reconcile strong factory data with the headwinds of trade policy and geopolitical risk.
This article is for informational purposes only and does not constitute investment advice.
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