U.S. Manufacturing Index Rises to 54.0 in May, Fastest Pace Since 2022

The U.S. manufacturing sector expanded at its fastest rate since 2022 in May, with the ISM Manufacturing Index rising to 54.0. This figure surpassed the consensus expectation of 53.0 and represents the fifth consecutive month of growth for the index, signaling a robust rebound for an industry that has faced considerable challenges in recent years.

Key measures of manufacturing activity largely trended upward in May. The new orders index advanced to 56.8 from 54.1 in April, while the production index increased to 54.3 from 53.4. The employment index, though still in contraction territory, improved to 48.6 from 46.4. The supplier deliveries index held steady at 60.6.

The improvement in manufacturing activity appears broad-based, with sixteen of the eighteen major manufacturing categories reporting expansion. This sustained growth is attributed in part to factors such as the reshoring of production, the ongoing buildout in artificial intelligence, and favorable business tax incentives for domestic capital expenditures. Both new orders and production, considered crucial indicators, showed further strength, moving deeper into expansion territory.

For an extended period, order books had been weak, compelling manufacturers to rely on existing backlogs. However, order backlogs have been growing again since the start of 2026, with the index reaching 52.2 in May, marking its fifth consecutive month of expansion after more than three years of contraction. Despite the notable upswing in demand, manufacturers remain hesitant to increase their workforce, as evidenced by the employment index remaining in contraction territory for the 32nd consecutive month at 48.6.

While inflationary pressures persisted, the prices paid index saw a slight decline to 82.1 in May from 84.6 in April. Notwithstanding this decrease, the current reading remains significantly above January's 59.0 and is near levels observed during the post-COVID inflation surge. In other economic news, construction spending rose by 0.4% in April, driven by substantial increases in homebuilding, office, and power projects, which more than compensated for a decline in manufacturing construction.

Key terms:

1. ISM Manufacturing Index: A monthly survey of purchasing and supply managers that measures the health of the manufacturing sector. A reading above 50 generally indicates economic expansion, while a reading below 50 suggests contraction.

2. New Orders Index: A component of the ISM Manufacturing Index that reflects the level of new orders received by manufacturers, serving as a forward-looking indicator of demand.

3. Prices Paid Index: A component of the ISM Manufacturing Index that tracks the prices manufacturers pay for raw materials and other inputs, providing insight into inflationary pressures.