What does a Manufacturing PMI® above 42.3% indicate?
It generally indicates an expansion of the overall economy.
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Business / Manufacturing
Manufacturing PMI at 48.5% in May 2025: ISM Report
The U.S. manufacturing sector experienced contraction in May 2025, marking the third consecutive month of decline. The Manufacturing PMI® registered 48.5%, slightly lower than April's 48.7%. This report, issued by the Institute for Supply M...
Key Insights
- The Manufacturing PMI® registered 48.5% in May, indicating contraction in the manufacturing sector.
- New Orders and Backlog of Orders indexes contracted, but at slower rates.
- The Production Index showed a slight increase but remained in contraction.
- The Prices Index remained in expansion, with companies reporting increased raw materials prices.
- The New Export Orders and Imports Indexes experienced significant contraction.
- **Why this matters:** These indicators reflect ongoing economic uncertainty and the impact of tariffs on supply chains and international trade. Businesses face challenges in planning and profitability due to market volatility.
In-Depth Analysis
The May 2025 Manufacturing ISM® Report On Business® reveals a mixed picture of the U.S. manufacturing sector. While some indicators show signs of slowing contraction, overall activity continues to decline.
**Demand:** Demand indicators presented a mixed scenario. The New Orders Index contracted for the fourth consecutive month, registering 47.6%, a slight increase from April. The Backlog of Orders Index also contracted, but at a slower rate. However, the Customers' Inventories Index remained 'too low,' which is typically a positive sign for future production. The New Export Orders Index contracted more strongly, indicating weakening international demand.
**Output:** The Production Index improved slightly to 45.4% but remained in contraction territory. This suggests that factories are still adjusting production plans downward due to economic uncertainty. The Employment Index also remained in contraction, with companies continuing to reduce headcounts through layoffs and attrition.
**Inputs:** The Inventories Index entered contraction territory, indicating that companies have largely completed pulling forward materials to minimize the financial impacts of tariffs. The Supplier Deliveries Index indicated continued slowing of deliveries, reflecting ongoing delays at ports of entry. The Prices Index remained in expansion, driven by increases in steel and aluminum prices and the impact of tariffs.
**Industry Performance:** Among the largest manufacturing industries, only Petroleum & Coal Products and Machinery expanded in May. Several industries reported contraction, including Paper Products, Wood Products, and Transportation Equipment.
**Impact of Tariffs:** Several respondents cited tariffs as a major factor impacting business conditions. Tariffs are causing supply chain disruptions, increasing prices, and creating uncertainty for international orders.
FAQ
What are the main factors impacting business conditions in the manufacturing sector?
Tariffs, market volatility, and economic uncertainty are the primary challenges.
Takeaways
- The U.S. manufacturing sector is currently in a state of contraction, influenced by tariffs and economic uncertainty.
- Demand indicators are mixed, with some showing signs of slowing contraction but overall activity remaining weak.
- Companies are facing challenges related to supply chain disruptions, increased prices, and reduced international demand.
- Monitor the Manufacturing PMI® and related indexes to stay informed about the evolving economic landscape.
Discussion
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Sources
Disclaimer
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