By JBizNews Desk
June 2, 2026
NEW YORK — American factories are running hotter than they have in three years — and so are the costs of keeping them running.
The Institute for Supply Management (ISM) reported Monday that its Manufacturing Purchasing Managers Index (PMI) rose to 54.0% in May, up 1.3 percentage points from April and the strongest reading since May 2022. According to Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, the report points to a manufacturing sector that continues to gain momentum even as inflationary pressures remain stubbornly elevated.
A PMI reading above 50 signals expansion. At 54%, U.S. manufacturing is not merely growing — it is accelerating. ISM estimates that the May reading is broadly consistent with the U.S. economy expanding at roughly 2.2% annualized GDP growth, providing another indication that the industrial side of the economy remains resilient despite higher borrowing costs and geopolitical uncertainty.
The strongest signal came from demand.
The New Orders Index climbed to 56.8%, rising 2.7 points from April and marking its fifth consecutive month of expansion. The Production Index increased to 54.3%, extending a seven-month growth streak as manufacturers responded to stronger order activity.
Export demand also showed signs of life after months of weakness. The New Export Orders Index returned to expansion territory at 50.6%, while the Imports Index rose to 53.0%, suggesting companies are increasing purchases of foreign materials and components to support growing production schedules.
The breadth of the expansion was particularly notable.
All six of the largest manufacturing industries reported growth during May, led by Computer & Electronic Products, Machinery, and Transportation Equipment. Of the 18 manufacturing industries tracked by ISM, 16 expanded, while only Wood Products reported contraction.
That kind of broad participation is typically viewed as a sign of underlying economic strength because growth is not concentrated in a single sector or product category.
Yet the report also contained a clear warning.
The Prices Index registered 82.1%, easing slightly from April but remaining at levels historically associated with significant cost pressures across supply chains.
A reading above 80 indicates that a large majority of manufacturers are paying more for raw materials and production inputs. According to ISM survey respondents, higher costs are being driven by several factors, including elevated steel, aluminum, copper, and petroleum-based product prices.
The ongoing conflict involving Iran continues to ripple through global energy markets, while tariffs and trade-related costs remain a concern for many manufacturers.
Notably, ISM reported that the Iran conflict was referenced in approximately 42% of survey comments submitted by purchasing managers, while tariffs were mentioned in roughly 18% of responses. More than half of respondents cited price volatility as an operational challenge.
One executive in the transportation-equipment sector reported rising logistics and fuel expenses tied to higher oil prices, while a food-and-beverage manufacturer said diesel costs were putting pressure on margins even as uncertainty remained regarding tariff-related refunds and trade policies.
Perhaps most striking was what did not appear in the report.
Not a single commodity was listed as declining in price during May.
That suggests inflationary pressures remain deeply embedded within industrial supply chains even as policymakers continue to look for signs that price growth is moderating.
Employment remained one of the few softer areas.
The Employment Index improved to 48.6% but remained below the 50-point threshold that separates growth from contraction. The index has now spent 32 consecutive months below expansion territory.
Spence noted that hiring activity remains mixed, with the ratio of companies adding workers roughly equal to the number reducing or managing headcount.
In practical terms, factories are producing more goods without significantly expanding payrolls.
Many manufacturers appear to be relying on existing employees, productivity improvements, automation, and operational efficiencies rather than aggressively hiring new workers.
Buried deeper within the report was another potentially important signal.
The Customers’ Inventories Index remained at a low 42.7%, indicating that inventories held by customers are still considered too lean. Historically, low customer inventories often support future production growth because businesses eventually need to replenish depleted stock levels.
At the same time, supply-chain vulnerabilities remain.
The Supplier Deliveries Index showed continued slowing, extending a six-month trend. Respondents highlighted ongoing concerns surrounding semiconductor availability, memory-chip supplies, and access to critical minerals used in advanced manufacturing.
For consumers, the report presents both encouraging and challenging implications.
Strong factory activity generally supports economic growth, investment, and employment across industrial regions. Growing production and healthy order books suggest manufacturers expect demand to remain solid through the summer months.
However, elevated costs inside factories often find their way into consumer prices over time.
When manufacturers pay more for steel, energy, transportation, and imported components, those expenses can eventually affect the cost of automobiles, appliances, electronics, packaged foods, and other everyday products.
The report also places the Federal Reserve in a difficult position.
Strong manufacturing growth argues against aggressive monetary easing, while persistent cost pressures suggest inflation risks remain alive. At the same time, weak factory hiring indicates parts of the labor market are still cooling.
The next ISM Manufacturing Report, covering June activity, will be released on July 1 and will provide further insight into whether the current combination of strong production and elevated prices continues.
For now, May’s data delivers a clear message: America’s factories are experiencing their strongest momentum in years, but the cost of sustaining that growth remains stubbornly high.
JBizNews Desk — New York
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