US Manufacturing Activity Hits Four-Year High Amid Iran Conflict

U.S. manufacturing activity rose in May, with the S&P Global flash manufacturing PMI climbing to 55.3, the strongest reading since May 2022 and above the Reuters median forecast of 53.8. The increase came amid a U.S.–Israeli conflict with Iran that has disrupted Strait of Hormuz shipping, lifted energy prices and strained supply chains, causing shortages of fertilizers, aluminum and consumer goods. The surge also follows earlier constraints from Trump-era tariffs.

Reuters

Input inventories rose to an 11-month high as firms built safety stocks. Supplier delivery times lengthened to August-2022 levels. The price-paid index for inputs jumped to 79.5, the highest since June 2022, up from 68.4 in April. Output-price index rose to 63.3, its highest since September 2022, while the overall price-paid index reached 64.0, the strongest reading since November 2022. New order growth slowed to its weakest in two years, and manufacturing employment rebounded as services-sector jobs fell, leaving private-sector employment at a 21-month low. The flash composite PMI, which blends manufacturing and services, held steady at 51.7.

Reuters

Chief business economist Chris Williamson said the May PMI indicates the economy will struggle to sustain annualized GDP growth above 1 % in Q2. He said inventory buildup reflects precautionary stockpiling amid price and supply worries, while slowing new orders signal demand pressure.

Reuters

Analysts warn that rising input and output prices could fuel inflation and erode consumer purchasing power, while the temporary inventory buildup may be unsustainable as order growth stays weak. The PMI of 55.3 exceeded the Reuters forecast of 53.8, revealing a gap between expectations and activity, and the survey offers limited insight on how long firms can maintain high inventory levels; no official policy response has been reported.

Reuters

• “that the economy will struggle to manage annualized GDP growth of much more than 1% in the second quarter.” — Chris Williamson, S&P Global

Reuters

• “the building of safety stocks amid price and supply worries.” — Chris Williamson, S&P Global

Reuters

• “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,” — Chris Williamson, S&P Global

Reuters

Williamson warns the inventory boost may be short-lived and persistent price pressures could curb future manufacturing growth. Tracking upcoming PMI releases will be key to assess whether the sector can maintain expansion amid geopolitical and inflationary challenges.

Reuters