US manufacturing activity scales four-year high in May, ISM says

WASHINGTON, June 1 (Reuters) - U.S. manufacturing activity increased more than expected in May, hitting the highest level in four years, likely driven by businesses front-loading orders amid rising prices and shortages because of the war with Iran. The Institute for Supply Management said on Monday its manufacturing PMI advanced to 54.0 last month, the highest reading since May 2022, from 52.7 in April. A reading above 50 indicates expansion in manufacturing, which accounts for 9.4% of the economy. Economists polled by Reuters had forecast the PMI rising to 53.

Manufacturing has now grown for five straight months, anchored mostly by an artificial intelligence spending spree.

The U.S.-Israeli war with Iran has closed the Strait of Hormuz, severely disrupting the shipping of commodities and raising prices of goods like energy, aluminum and fertilizers. The ISM survey's new orders measure increased to 56.8 last month from 54.1 in April. There were rises in backlog orders as well as exports. Its supplier deliveries index was unchanged at a high reading of 60.6. A reading above 50 indicates slower deliveries. Supply chains were already strained by last year's sweeping tariffs on imports, which were struck down in February by the U.S. Supreme Court. President Donald Trump's administration has imposed new duties and defended the tariffs as necessary to revive the domestic industrial base. With the delivery performance poor, prices at the factory gate continued to rise, though the pace slowed slightly last month. The survey's prices paid for inputs measure edged down to a still-high 82.1 from 84.6 in April, which was the highest reading since April 2022, and was lower than forecasts for 85.0. The conflict is driving up prices, and inflation is spilling over beyond energy goods. Inflation increased at its fastest pace in three years in April, the government reported last week. Soaring inflation, which is eroding household purchasing power, has left financial markets expecting that the Federal Reserve would keep its benchmark overnight interest rate in the 3.50%-3.75% range into next year.

Despite the increase in orders, factory employment remained subdued last month. The ISM's manufacturing employment index posted its 32nd straight month of contraction after expanding in September 2023. The ISM has noted that managing head counts remains the norm in the sector as opposed to hiring, mostly through layoffs, attrition and not backfilling positions.

Manufacturing employment has declined by about 77,000 jobs since January 2025. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )