U.S. Manufacturing Activity Accelerates to Three-Year High Despite Inflation Pressures — Evening Brief – 06.01.26

U.S. manufacturing activity expanded at its fastest pace in three years in May, with two closely watched gauges painting a picture of robust headline growth — but deeper in the data, rising input costs, inventory stockpiling and supply chain disruptions driven by the Middle East conflict are raising red flags about the inflation outlook in the months ahead.

The Institute for Supply Management’s Manufacturing PMI climbed to 54.0 in May from 52.7 in April, surpassing the 53.1 consensus and reaching its highest reading since May 2022. New orders expanded for a fifth consecutive month, rising to 56.8 from 54.1, while production accelerated to 54.3 from 53.4. Supplier deliveries held steady at 60.6, and employment improved to 48.6 from 46.4, though it remained in contraction territory. Manufacturing prices eased modestly to 82.1 from 84.6 but stayed at historically elevated levels.

“In May, U.S. manufacturing activity remained in expansion territory, growing at a faster pace compared to the month before,” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee. “The new orders index indicated faster growth, the production index grew at a faster rate, and the employment and inventories indexes remained in contraction, though both improved.”

The S&P Global U.S. Manufacturing PMI reinforced the headline strength, coming in at 55.1 in May — the highest since May 2022 and above April’s 54.5, though fractionally below the initial estimate of 55.3. The index recorded the sharpest upturn in production since April 2022, with new orders also increasing markedly. However, S&P Global noted that growth in output and sales was partly driven by inventory building as firms sought to protect themselves from supply chain disruption and steeply rising prices linked to the war in the Middle East.

Manufacturing input costs rose at a rate unmatched in nearly four years, while supplier delivery times deteriorated to their worst level since August 2022. Business confidence softened from April, though it remained sufficiently positive to support a further rise in employment.

“At first glance, the manufacturing sector seems to be firing on all cylinders, but lift the hood and the picture is not so clear,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Jump in producer costs sends a worrying signal that broader economy inflation has further to rise in the coming months.”