U.S. manufacturing activity increased more than expected in May, most likely because U.S. businesses are stockpiling inventory because of rising prices and growing shortages caused by the U.S.-Israel war on Iran, reports Reuters. 

The Institute for Supply Management survey released June 1 showed its manufacturing Purchasing Managers' Index (PMI) rose for the fifth consecutive month to 54.0% in May, the highest reading since May 2022, from 52.7% in April. A reading above 50% indicates expansion in manufacturing, which currently accounts for 9.4% of the economy.  

In May, U.S. manufacturing activity remained in “expansion territory,” said Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. 

Of the five subindexes that make up the PMI, the New Orders index indicated faster growth compared to the previous month, the Supplier Deliveries index stayed the same, the Production Index grew at a faster rate, and the Employment and Inventories indexes remained in contraction, though both improved. 

A Manufacturing PMI above 47.5%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the May Manufacturing PMI indicates the overall economy grew for the 19th straight month. “The past relationship between the Manufacturing PMI and the overall economy indicates that the May reading (54%) corresponds to a 2.2% increase in real gross domestic product on an annualized basis,” said Spence.