–ISM Manufacturing Index at 48.5 Vs. 48.7 in April, Below Consensus at 49.1
–ISM New Chair Spence: Agree with Predecessor Fiore that US Economy Not Yet in Recession but PMI Moving in That Direction
–Spence: Manufacturing Sector Will Continue Struggling Until There is More Certainty Over US Trade Policy
–Spence: Layoffs Main Option for Firms as They Reduce Workforces
By Max Sato
(MaceNews) – U.S. manufacturing activity was in contraction for the third straight month in May as the outlook for growth and inflation remains uncertain amid the unabating protectionist U.S. trade policy under President Trump, prompting firms to restrain output and trim payrolls. Stiff import duties and frequently changing tariff numbers are also wreaking havoc on supply chains and keeping costs high.
The data released Monday by the Institute for Supply Management showed that the ISM manufacturing sector purchasing managers’ index dipped 0.2 percentage point to a six-month low of 48.5 in May after slipping 0.3 point to 48.7 in April. It came in weaker than the median economist forecast of 49.1. The PMI was in slight expansion at 50.3 in February and 50.9 in January, the first time the index had popped above the neutral line of 50 since October 2022 (50.3).
“Contraction in most of the indexes that measure demand and output have slowed while inputs have started to weaken,” Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Slower supplier deliveries have been driven by tariff concerns and advancing material deliveries; such shipments slowed or stopped after tariffs were deployed, leading to a drawdown of manufacturing inventories.”
“Layoffs were the primary measure, an indication that staff shrinking continues to be urgent,” she said. Firms continue to reduce head counts through layoffs, attrition and hiring freezes and a roughly 1-to-1.4 ratio of hiring versus staff-reduction comments is worse than in April (1 to 1), indicating an acceleration of head-count reductions due to uncertain near- to mid-term demand, according to the ISM.
“The manufacturing economy continues to struggle and it’s going to continue to struggle until there is more certainty around what’s going to happen to tariffs,” Spence told reporters. “Panelists for the sixth month in a row have talked about tariff concerns as the biggest issue,” she said. “86% of the headline comments have mentioned tariffs, that is up from 82% (in April).”
Spence replaced Timothy Fiore who retired from the chair position at the end of May. Spence was vice president of the centralized sourcing and procurement group at FedEx Corp. from October 2013 until she retired from the firm in July 2023.
“I absolutely agree with Tim,” Spence said, adding they shared similar supply management backgrounds. “Certainly not yet in recession. We still feel that the economy overall over a longer period of time is still in expansion.”
The ISM May report showed that the U.S. economy continued in expansion for the 60th month after one month of contraction in April 2020. An ISM purchasing managers index for the manufacturing sector above 42.3 in the long run generally indicates a domestic economic expansion.
“As it is, 42.3 is the number we look after over time, “Spence said. “If it keeps going down and it has toward that, we will eventually get there. We are really hopeful that the tariff uncertainty can come to a conclusion and that the purchasing managers that are working so hard to deal with this whiplash can focus on the normalness.”
Spence was asked whether she agreed with Fiore’s view provided last month that he didn’t think the U.S. economy was in recession but that the ISM manufacturing PMI indicated it was moving in that direction. Last month, Fiore also told reporters that new orders from both domestic and overseas customers were down, due to uncertainty over near-term demand as well as conflicts about who should pay for the extra costs generated by the tariffs on imports from around the world.
Quoting the University of Michigan’s consumer sentiment index at a final 52.2 in May, but sharply down from 57.0 in March and 64.7 in February, Spence said consumers working in the auto industry are now being cautious about spending in light of more layoffs.
The ISM May survey showed the Trump tariffs first hit the auto and metals industries with 25% duties but that the impact of the U.S. trade policy had become more widespread and the unpredictable nature of Trump’s trade agenda is causing chaos on the supply chain frontline.
“There is continued softening of demand in the commercial vehicle market, primarily related to higher prices and economic uncertainty,” a transport equipment maker said. “The impact of ever-changing trade policies of the current administration has wreaked havoc on suppliers’ ability to react and remain profitable.” Vehicle manufacturers have already rolled price increases into their products to protect their bottom lines but have not been as cooperative with their supply bases, the firm said, concluding, “This has resulted in a high occurrence of suppliers falling into financial distress.”
“Tariff uncertainty is impacting new international orders,” a fabricated metal producer said. “Tariffs are also the main reason our Asia customers are requesting delayed shipments.”
A machinery maker told the ISM: “There is continued uncertainty regarding market reaction to the recently imposed tariffs and resulting actions by other countries. The rare earth restrictions being imposed are of high concern in the near term.”
“Government spending cuts or delays, as well as tariffs, are raising hell with businesses,” a firm from the computer and electronic products category said. “No one is willing to take on inventory risk.”
“Uncertainty due to the recent tariffs continue to weigh on profitability and service,” a paper products maker said. “An unresolved (trade deal with) China will result in empty shelves at retail for many do-it-yourself and professional goods.”
President Trump initially slapped 25% tariffs on Canadian and Mexican imports to the U.S. and an additional 10% on China over illegal immigration and drug trafficking for which he blames those countries. The duties on imports from China were jacked up to 145% in April, triggering a 125% Chinese levy on some U.S. goods. But Washington and Beijing have suspended all but 10% of their tariffs for 90 days, starting on May 14. They have cancelled other retaliatory levies, lowering U.S. tariffs on Chinese imports to 30% and Chinese tariffs on U.S. imports to 10%.
On April 2, Trump announced most countries would face a 10% baseline tariff on all goods entering the U.S.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders index: 47.6 vs. 47.2 in April. It contracted for the fourth consecutive month in May after three consecutive months of expansion. The latest reading remains below the 12-month moving average (48.6). The index hasn’t indicated consistent growth since a 24-month streak of expansion that ended in May 2022.
The production index: 45.4 vs. 44.0. Prior to the first two months of 2025, the last time the index registered above 50 was in April 2024 (50.7).
The employment index: 46.8 vs. 46.5. It rose for the second straight month but was in contraction for the fourth straight month after a slight expansion in January (50.3) and seven straight months of contraction before that.
The supplier deliveries index (the only one that is inversed): 56.1 vs. 55.2. Delivery performance of suppliers to manufacturers was slower for a sixth straight month. The index hit the highest (the slowest deliveries) since 57.3 in June 2022. It follows a contraction (which indicates faster delivery) in November 2024, preceded by four consecutive months of slower deliveries. After a reading of 52.4 in September 2022, the index went into contraction and remained there for 20 out of 21 months, with February 2024 the exception.
The manufacturing inventories index: 46.7 vs.50.8. It is a four-month low. The readings in April and March (53.4) were the index’s highest since December 2022 (51.4). Prior to March 2025, the last time the index was above 50 was in August 2024 (50.2).
Among other subindexes, the prices paid index: 69.4 vs. 69.8 in April and 69.4 in March. The recent figures were the highest since 78.5 recorded in June 2022, when price pressures were easing month by month. The latest reading indicates raw materials prices increased for the eighth straight month after a decrease in September 2024.
The new export index: 40.1 vs. 43.1. It remains the lowest since 39.5 in May 2020, when it began to pick up from the pandemic-triggered record low of 35.3 in April 2020. It contracted for the third month in a row in April after expanding for two consecutive months. The 6.5-point decrease in April 2025 was the largest since April 2020, when the index dropped 11.3 points.
The import index: 39.9 vs. 47.1. The Trump tariffs pushed the index to a 16-year low. It was the lowest since 38.5 recorded in May 2009, when the world was recovering from a sudden plunge in demand sparked by the U.S. credit crisis following the collapse of Lehman Brothers in September 2008. The index has dropped 12.7 percentage points in three months to May 2025.