Manufacturing Sector Struggles Continue with Third Consecutive Month of Contraction
Manufacturing PMI Registered at 48.5% in May, Lowest since November 2024, According to ISM Report
The Institute for Supply Management (ISM) Manufacturing PMI clocked in at 48.5% last month, signaling another month of contraction for the U.S. manufacturing sector. Compared to April's reading of 48.7%, the PMI dropped slightly, indicating that manufacturing activity contracted at an even faster pace in May.
According to Susan Spence, chair of the ISM's manufacturing business survey committee, only one of the five subindexes directly impacting the Manufacturing PMI (supplier deliveries) was in expansion territory, down from two in April.
The new orders index, despite inching up by 0.4 points, remained in contraction territory at 47.6% in May. Anything below 50% signifies contraction. Similarly, the production and employment indexes continued to contract at a slower pace, registering 45.4% and 46.8%, respectively.
The imports index experienced a sharp decline of 7.2 points from April's 47.1%, plunging into extreme contraction with a May reading of 39.9%. "Imports continue to contract as demand has reduced the need to maintain import levels from previous months, as well as due to the impact of tariff pricing," Spence explains.
In a positive development, seven industries reported growth in May, including plastics & rubber products, nonmetallic mineral products, petroleum & coal products, furniture & related products, electrical equipment, appliances & components, fabricated metal products, and machinery. However, only two of the six largest manufacturing industries were in expansion – petroleum & coal products, and machinery – as compared to four in April.
Concerns surrounding tariffs persist, with respondents citing uncertainty about market reactions to the recently imposed tariffs and the resulting actions by other countries. A respondent from the machinery industry commented, "There is continued uncertainty regarding market reactions to the recently imposed tariffs and resulting actions by other countries. The rare earth restrictions being imposed are of high concern in the near term."
Another respondent from the transportation equipment sector added, "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."
Economic uncertainty, production adjustments, supply chain challenges, tariff-induced price pressures, and contracting imports are the factors contributing to the ongoing contraction in the manufacturing sector, as refleced in the ISM Manufacturing PMI. However, it's worth noting that the S&P Global US Manufacturing PMI showed a contrasting trend, indicating expansion in May.
In light of the ongoing contraction in the U.S. manufacturing sector, finance and industry are intertwined, with economic uncertainty and tariffs causing concerns for various industries, such as machinery and transportation equipment. The blocking of rare earths and ever-changing trade policies have significantly impacted suppliers' financial stability and profitability.
