The U.S. manufacturing sector showed only a slight recovery in production last month, while inventories dwindled and tariffs continued to weigh on demand. With the PMI still below 50, companies face persistent challenges in securing inputs and stabilizing costs.
Inventory Pressures Mount as Production Ticks Up
U.S. manufacturing remained in contraction in May as new tariffs and global trade friction strained supply lines. The Institute for Supply Management’s Purchasing Managers’ Index fell to 48.5%, its fifth straight month below 50. A reading below that level signals contraction.
Production rose to 45.4%, a modest rebound from April’s sharp drop. But companies are working through inventories built up ahead of earlier tariffs, a strategy that may prove short-lived. “If there’s no new inflow, it’s really, really bad news for production,” said Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, in an official statement.
Imports fell sharply, with the index dropping 7.2 percentage points to 39.9%, the lowest since the 2009 recession. Meanwhile, fresh 50% tariffs on aluminum and steel have raised concerns that further price increases and delays could stifle any recovery.
Congestion at ports is adding to the strain. Disputes over who bears higher import costs have slowed shipments, Spence said, threatening to undercut gains in production. “If things continue to be down and you’re getting that inside of your four walls, then how can production be up?” she said.
Conflicting Signals from PMI Surveys
S&P Global’s separate PMI report showed a slightly more positive view, rising to 52 in May. Manufacturers reported small gains in employment and signs of domestic stability. But foreign demand remains subdued, and the report suggests the uptick may be temporary. “The rise in the PMI during May masks worrying developments under the hood of the U.S. manufacturing economy,” said Chris Williamson, chief business economist at S&P Global.
Williamson said that while some firms are building inventory to hedge against future disruptions, these stockpiles are a stopgap rather than a sign of lasting stability. “It’s a temporary surge in demand,” he said, “not a real recovery.”
The ISM expects manufacturing revenue to grow just 0.1% this year as firms struggle with rising input costs and weak global demand. Spence noted that nearly nine in ten survey respondents cited tariff concerns as a top challenge. “It’s the uncertainty,” she said. “It’s not benefiting anybody right now.”
Finding Balance Amid Uncertainty
While production showed modest gains last month, these were driven by a drawdown of stockpiles built up in anticipation of further trade disruptions. With fresh 50% tariffs on steel and aluminum now in effect, the cost and availability of critical inputs will remain a source of strain.
Amid this uncertainty, measured scenario planning will be critical. Rather than counting on short-lived rebounds in production, companies will need to take a hard look at their cost structures, supplier dependencies, and operational risks. Stabilizing output will depend not just on market conditions, but on disciplined strategies to secure inputs and manage costs in a policy environment that continues to evolve.
