US manufacturing output stagnated in May, showing no growth compared to the 0.7% increase observed in April, according to the latest data from the Federal Reserve. After four months of rising output, the production halted, primarily due to ongoing supply chain disruptions and increasing input costs that are impacting the sector from both sides.
What does this mean for the manufacturing sector? It is noteworthy that this stall occurred in conjunction with a seemingly positive report from another manufacturing measure. The ISM Manufacturing PMI jumped to 54.0 in May, up from 52.7 in April, indicating that manufacturing expanded for the fifth consecutive month. This was also the highest reading recorded since May 2022. While one survey indicates that factories are busier than they have been in three years, actual production metrics tell a different story—there was no movement in output.
This divergence in data is illustrated by the ISM production sub-index, which reported a strong 54.3, suggesting active factory floors. In contrast, the supplier deliveries index painted a less optimistic picture, with a reading of 60.6. Since any figure above 50 indicates that deliveries are slowing down, a reading of 60.6 signals significant delays.
When we assess total industrial production—which also includes mining and utilities—May only saw a slight increase of 0.1%. Crucially, the manufacturing sector contributed nothing to this growth. Additionally, the pricing environment remains challenging, as 57% of the ISM panelists pointed out concerns over price volatility.
Geopolitical tensions and tariffs are casting a shadow on the manufacturing outlook. Specifically, 42% of ISM respondents identified the Iran conflict as a significant factor affecting their business forecasts, while 18% attributed uncertainty to existing tariffs.
What does this mean for investors? The supplier deliveries index at 60.6 is critical to monitor. Continued delivery delays create inflationary pressures, prompting manufacturers to pay higher prices to secure limited inputs. With over half of the panelists flagging concerns regarding pricing volatility, it appears that cost-push inflation in the goods sector has not yet been completely addressed. Investors should track the supplier deliveries index and input price indicators in the upcoming months to gauge whether the stagnation observed in May is a temporary setback or the beginning of a prolonged slowdown in manufacturing output.