United States manufacturing activity expanded at its fastest pace in four years in May, exceeding expectations as businesses increased orders and production, though rising costs and mounting supply chain disruptions linked to the conflict with Iran threatened to undermine the sector's recovery.
The Institute for Supply Management's (ISM) Manufacturing purchasing managers' index (PMI) registered 54.0 in May, up from 52.7 in April and above market expectations for a reading of 53.0.
It marked the strongest reading since May 2022, when the index stood at 55.9.
A reading above 50 indicates expansion in manufacturing activity. The sector accounts for approximately 9.4% of the U.S. economy.
The latest data signalled that manufacturing has now expanded for five consecutive months, recovering after a prolonged period of weakness that followed President Donald Trump's sweeping import tariffs.
However, survey respondents warned that the now four-month-old U.S.-Israeli conflict with Iran, which has effectively closed the Strait of Hormuz, is creating significant pressure on supply chains and increasing input costs across a range of industries.
Businesses in sectors ranging from transportation equipment to fabricated metal products reported escalating prices and weakening customer confidence, with some noting that clients were increasingly reluctant to commit to long-term spending plans.
The manufacturing recovery continues to be supported by strong investment in artificial intelligence infrastructure, which has boosted demand for industrial equipment and technology-related products.
At the same time, disruptions to commodity shipments have pushed up the cost of key inputs, including energy, aluminium and fertilisers.
Sixteen manufacturing industries reported growth during May, including textile mills, paper products, electrical equipment, appliances and components, primary metals, miscellaneous manufacturing, machinery and transportation equipment.
Wood products was the only industry to report contraction during the month.
Susan Spence, MBA, Chair of the Institute for Supply Management, said sentiment among manufacturers remained heavily skewed towards caution despite the stronger headline reading.
“In May, 25 percent of the comments were positive and 69 percent negative, with a 1-to-2.7 ratio of positive to negative sentiment. Among comments, the Iran war was mentioned in 42 percent and tariffs in 18 percent; 57 percent of the panelists mentioned pricing volatility as an issue for their companies."
Comments from survey participants highlighted growing concerns over supply chain disruptions and rising operating costs.
Manufacturers of transportation equipment reported that the "Iran conflict (was) starting to directly and negatively impact cost of supply chain".
Meanwhile, machinery producers said that "the Middle East conflict is triggering shipment delays and uncertainties", although some companies in the sector also reported unexpected "increased demand" during the past quarter.
Food, beverage and tobacco manufacturers also pointed to higher transport costs, stating that the "cost of diesel is having huge impacts on our profitability", while noting ongoing uncertainty "around tariff refunds".
The tariff landscape remains a source of uncertainty for manufacturers. Earlier this year, the U.S. Supreme Court struck down broad tariffs imposed by the administration, prompting the White House to introduce a revised set of duties.
Trump has continued to defend tariffs as a key part of his economic agenda, arguing that they are necessary to rebuild America's industrial base and reduce dependence on foreign suppliers.
Despite the strong May PMI reading, the survey suggests manufacturers remain concerned that geopolitical tensions, volatile commodity prices and policy uncertainty could slow momentum in the months ahead.
