US factory activity hit its highest level since May 2022, with the ISM Manufacturing PMI rising to 54.0 in May. But the sub-indices give planners a harder read: demand is accelerating into a supply side that is slowing down and charging more.
By the numbers: The headline index climbed 1.3 points from April's 52.7, a fifth straight month of expansion, with 16 industries growing and only wood products contracting.
Services followed on June 3 at 54.5, a 23rd consecutive month of growth, with transportation and warehousing, wholesale and retail among the industries expanding.
The squeeze: New orders rose to 56.8 while customers' inventories stayed in "too low" territory at 42.7, the classic restocking setup. The supply side is not keeping pace.
Supplier deliveries slowed for a sixth straight month at 60.6, matching their highest reading since May 2022, with electronic components in short supply for 15 months. The prices index registered 82.1, a 20th consecutive month of increases and a second straight month above 80.
The new cost driver: Respondents mentioned the Iran war in 42% of comments versus tariffs at 18%. Survey chair Susan Spence tied the prices index to steel and aluminum, tariffs, and petroleum costs from the Middle East conflict.
Operators spent 2025 building tariff playbooks; the cost now climbing is fuel and freight, which re-sourcing does not address. Long-distance truckload producer prices were up 20% year over year through April, a 24-month high, per a Conveyor analysis of BLS data.
"Panic is starting within our industry," an electrical-equipment respondent wrote, citing lead-time constraints and price hikes "customers are not willing to bear."
The catch: Employment contracted in both surveys, at 48.6 in manufacturing and 47.9 in services, and panel comments ran 69% negative to 25% positive.
"Things are looking good for now. But if we could see an end to this war, we could really take off," Spence said on a media call. The June report will show whether prices hold above 80 and supplier deliveries finally loosen.
