WASHINGTON, D.C.: U.S. manufacturing activity accelerated in May to its strongest level in four years as companies increased inventories to protect themselves against supply disruptions and rising costs linked to the war with Iran.
Data released by S&P Global on May 21 showed its flash manufacturing Purchasing Managers’ Index rose to 55.3 in May from 54.5 in April, marking the highest reading since May 2022. Economists polled by Reuters had expected the index to ease to 53.8.
A reading above 50 indicates expansion in the manufacturing sector, which accounts for about 9.4 percent of the U.S. economy.
The increase came as the nearly three-month-old U.S.-Israeli conflict with Iran continued to disrupt shipping through the Strait of Hormuz, a critical global energy route. The conflict has pushed up energy prices, strained supply chains, and contributed to shortages of products ranging from fertilizers and aluminum to consumer goods.
Growth in manufacturing offset slower momentum in the services sector. S&P Global’s flash services PMI slipped slightly to 50.9 in May from 51.0 in April, leaving the composite PMI output index unchanged at 51.7.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the latest data suggested the broader economy remained weak despite the factory rebound.
“The reading indicated that the economy will struggle to manage annualized GDP growth of much more than one percent in the second quarter,” Williamson said.
S&P Global said manufacturers continued to receive new orders, although growth slowed compared with April. At the same time, companies sharply increased inventories of raw materials and components.
The survey found input inventories rose to an 11-month high as businesses built “safety stocks amid price and supply worries.”
Supplier delivery times also lengthened to levels last seen in August 2022. Before the Iran conflict, delivery delays had already been aggravated by President Donald Trump’s broad tariffs on imported goods.
The worsening supply situation contributed to a sharp jump in manufacturing input costs. S&P Global’s gauge of prices paid by factories for materials surged to 79.5 from 68.4 in April, the highest level since June 2022.
Manufacturers also raised prices charged to customers. The survey’s measure of output prices climbed to 63.3, the highest reading since September 2022.
S&P Global’s broader measure of prices paid by businesses increased to 64.0 from 61.3 in April, reaching its highest level since November 2022 and signaling further inflation pressures ahead.
Producer inflation rose in April at the fastest pace in four years, while consumer prices recorded their biggest annual increase since May 2023.
Williamson warned that the recent boost from inventory building may not last.
“On average, over the past three months, order book growth has slowed to its weakest for two years, and a boost from precautionary stock building due to concerns over further price hikes and supply delays will not last forever,” Williamson said.
The survey also showed manufacturing employment rebounded in May, although hiring in the services sector weakened, pushing overall private-sector employment to a 21-month low.
