The results of two separate manufacturing surveys released Monday showed that the sector remained resilient even in a prolonged geopolitical tension that has triggered an oil supply shock and in turn reignited inflationary pressure.
The manufacturing sector continued its multi-month expansion streak, supported by strong production growth. The data may seem overwhelmingly positive for those skimming the headline numbers, and refusing to look under the hood.
ISM, S&P Global — The Headline Numbers
- The S&P Global’s final manufacturing PMI for May: 55.1 Vs. 54.5 in April; flash and consensus estimate at 55.3.
- The Institute of Supply Management’s (ISM) manufacturing PMI: 54 Vs. 52.7 in April; consensus 53.3.
The Inventory Mirage
S&P Global’s report highlighted the darker side of the story. The growth in production and sales was in part driven by stock building. Firms were driven by the urge to secure stockpiles as an insurance against potential supply chain disruptions. S&P Global Market Intelligence Chief Economist Chris Williamson said, “This stockpiling was again widely evident in May and makes it hard to take an accurate reading on the underlying health of the manufacturing economy.
The economist cautioned that growth will cool once the stock building runs its course.
Supply Chains Stretched
But are manufacturers justified in exercising prudence? It appears so. The supplier deliveries index indicated a slowdown for the sixth month in a row, according to the ISM’s survey. S&P Global’s survey showed supplier delivery times deteriorating at the worst pace since Aug. 2022. This measures how long it takes for suppliers to deliver raw materials and components to manufacturers after an order is placed.
Factories Humming, Jobs Aren’t
The employment component is also waving a red flag. The ISM’s employment index continued to contract for the 32nd straight month, although it improved from 46.4 in April to 48.6 in May. Another conundrum is that the manufacturing production growth hasn’t translated into job gains for the sector. The April non-farm payrolls survey showed manufacturing jobs fell by 2,000.
The two surveys had contrasting takes on exports. While S&P Global’s survey showed exports falling for the 11th straight month and remaining a notable source of demand weakness, ISM’s new export orders increased 2.7 points, moving into expansion territory. The differing takes could be due to the fact that the ISM surveys a broader domestic base while S&P Global's panel has more export-oriented firms.
Price Pressure Shows No Abatement
The prices component of both the reports flagged rising prices. The ISM’s prices index expanded for the 20th straight month, and stayed elevated at 82.1, although down from April’s 84.6.
Going by S&P Global’s report, input costs rose to the highest since July 2022 as rising raw material prices, particularly for fuel and oil-related products, pushed up prices. The firm also warned of a pass through effect. “Manufacturers’ own charges rose to the greatest extent since September 2022 as they sought to pass through their own higher expenses to clients, wherever possible.”
The Federal Reserve is left with no option but to wait and watch how the Iran war plays out and its ripple effects on inflation before pulling the trigger on rate cuts.
The Bull Case
Not everyone is pessimistic about the manufacturing sector’s trajectory. Fifth Third Commercial Bank Chief Economist Bill Adams has an explanation for the economy’s resilience. “Crosswinds are buffeting the U.S. economy this year: Of course the Iran War, but also the AI boom, the fiscal stimulus package passed last year, and the Fed’s rate cuts passed in late 2025,” the economist said, adding that “Manufacturing is a beneficiary of these crosswinds.”
Adams listed defense, aerospace, and semiconductors, along with capital equipment demand, boosted by the bonus depreciation clause of last year’s tax and spending bill, as among industries that benefited from the crosswinds. Also, the backlog of business decisions delayed in 2025 because of tariff uncertainty are likely starting to flow through to purchases and production, he added.
What Traders Should Watch
For traders, the critical question is timing. Stockpile cycles typically run two to three months before inventory saturation triggers a pullback in new orders. With the prices index still near multi-year highs and the Fed’s rate-setting meeting on June 18, a PMI topping out, along with persistent inflation would be the worst of both worlds — cooling growth without cooling prices. Watch the June ISM new orders print as the first real test of whether today's headline strength has legs.
