US manufacturing activity expands by most in 4 years

[WASHINGTON] US manufacturing activity expanded in May at the fastest pace in four years, bolstered by a pickup in new orders and production.

The Institute for Supply Management’s (ISM) manufacturing gauge rose 1.3 points to 54, indicated data released on Monday (Jun 1). Readings above 50 indicate growth.

The measure has now signalled expansion for five straight months, pointing to renewed vigour in the manufacturing sector amid a surge in artificial intelligence investment, more favourable tax provisions and diminished trade policy uncertainty.

New orders growth accelerated to a four-month high, as factory production also gained steam.

Part of that strength may also reflect customers trying to stockpile merchandise in an effort to front-run future price hikes. Conflict in the Middle East and the effective closure of the Strait of Hormuz has driven up the cost of oil and other materials.

While oil prices have subsided from their peaks, they remain well above pre-war levels. The ISM data indicated materials’ costs continued to rise sharply for producers, with the group’s price gauge easing some but remaining close to levels not seen since 2022.

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Sustained cost pressures could mean even higher prices for American consumers. Data out last week showed the Federal Reserve’s preferred gauge of inflation rose 3.8 per cent in April from a year earlier – nearly double the central bank’s goal and the fastest pace since 2023.

A measure of supplier deliveries held at the highest level since 2022, as war-related disruptions lengthen supply chains. Imports and exports expanded in May, and the group’s gauge of inventories rose to a one-year high.

ISM’s employment gauge improved in May, though it continued to indicate shrinking headcount. The government’s monthly employment report will be published on Friday. BLOOMBERG