#United States #Tempe #Manufacturing PMI #ISM Report #Economic Activity

U.S. Manufacturing Activity Declines Further in May 2025

The manufacturing sector in the United States has experienced continuous contraction in economic activity for the third straight month in May 2025. This trend follows a brief expansion phase and highlights ongoing challenges for the industry, as detailed in the latest Manufacturing ISM® Report on Business®.

According to Susan Spence, the chair of the ISM Manufacturing Business Survey Committee, the Manufacturing Purchasing Managers' Index (PMI) is currently at 48.5 percent, which is a slight decline from April's 48.7 percent. While a PMI above 42.3% typically indicates overall economic growth, the last reading signals that the manufacturing sector has deteriorated further. The situation is alarming considering the sector's performance, which had been fluctuating for nearly two years, including a lengthy contraction phase preceding the recent growth.

Key Indicators of Manufacturing Decline

Several important indicators reflect the contraction:

• - New Orders Index: Reduced for four consecutive months, now standing at 47.6 percent.
• - Production Index: Slight increase to 45.4 percent, but still within contraction limits.
• - Employment Index: Remains low at 46.8 percent despite a minor uptick.
• - Supplier Deliveries: They have shown a slow-down, with the index rising to 56.1 percent, indicating that deliveries are lagging as demand increases.

Additionally, the Backlog of Orders Index is at 47.1 percent, marking its 32nd month of contraction. Economic uncertainty has led to companies revising production plans downwards, which has in turn contributed to diminishing order backlogs.

Mixed Demand Indicators

Demand for manufactured goods has shown mixed signals. While new orders and backlog indexes are contracting, the Customer's Inventories Index suggests that customer stock levels are too low. This is usually a positive sign for future production potential. The New Export Orders Index, however, reports a worrying 40.1 percent, its lowest since the Great Recession.

Supplier Challenges and Tariffs

Respondents to the survey indicate ongoing challenges associated with supply chain and tariff implementations affecting their business. Many suppliers are struggling with escalating expenses that they pass on to manufacturers. Tariff-related issues have resulted in disruptions that echo those experienced during the COVID-19 pandemic, further complicating logistics.

Production Challenges and Employment

Despite minor improvements in the Production and Employment indexes, both indicate contraction. Employment reduction remains a pressing issue, with companies opting for layoffs rather than waiting for attrition to downsize their workforce. This flattening of production levels underscores a fragile balance amidst an unstable market environment.

Overall Outlook

In summary, while the U.S. manufacturing sector continues to display signs of decline, there are pockets of resilience, particularly in a few industries that reported growth, such as Petroleum & Coal Products and Machinery. Contraction in major industry sectors coupled with increasing raw material prices due to tariffs positions manufacturers precariously. As economic uncertainty lingers, stakeholders in the manufacturing sector must navigate the turbulence while readying for potential rebound opportunities.

The next Manufacturing ISM® Report will provide further insights into June 2025 at the start of the following month.