U.S. manufacturing hit its highest level in four years, as the S&P Global PMI climbed 0.6 points to 55.1 in May. For a second straight month, the expansion was largely driven by defensive stockpiling as companies continue bracing for supply disruptions and price hikes linked to conflict in the Middle East. The latest reading was below the forecast of 55.3 and marked the tenth straight month in expansion territory.
Here is an excerpt from Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, in the latest press release:
"At first glance, the manufacturing sector seems to be firing on all cylinders but lift the hood and the picture is not so clear.
"The headline PMI has hit a four-year high, with strong factory production growth for a second successive month in response to a further marked upturn in order books, but since the outbreak of war in the Middle Eastwe have seen production and demand buoyed by stock building as companies worry over rising prices and supply difficulties.
"This stockpiling was again widely evident in May and makes it hard to take an accurate reading on the underlying health of the manufacturing economy, as growth will cool once this stock build has run its course.
"The incidence of supply chain delays is the highest since August 2022, with the buying of safety stocks not only adding to the supply squeeze from the closure of the Strait of Hormuz but also pushing prices higher for a wide variety of inputs. The resulting steep jump in producer costs sends a worrying signal that broader economy inflation has further to rise in the coming months.
Background on the S&P Global US Manufacturing PMI
The S&P Global US Manufacturing PMI™ measures the activity level of purchasing mangers in the manufacturing sector through a questionnaire of ~600 manufacturers. The reported headline number is a weighted average of New Orders (30%), Output (25%), Employment (20%), Suppliers' Delivery Time (15%), and Stocks of Purchases (10%). The S&P Manufacturing PMI is a diffusion index, meaning that a reading above 50 indicates expansion in the sector compared to the previous month and a reading below 50 indicates contraction.
