U.S. Manufacturing PMI Hits 48.5 in May: New Orders and Production Remain in Contraction

The U.S. manufacturing sector continued its downward trend in May, contracting for the third straight month. The Institute for Supply Management (ISM) reported a Manufacturing PMI® of 48.5%.

This marks the lowest reading since November 2024 and signals a persistent slowdown in the industry after a brief period of expansion.

The PMI dropped by 0.2 percentage points from April's 48.7%, indicating the fast decline of the manufacturing sector's economic activity in May 2025.

The monthly Manufacturing PMI® (Purchasing Managers’ Index) from the Institute for Supply Management (ISM) is a well-known measure of the condition of the U.S. manufacturing industry.

The ISM Manufacturing Report on Business® for May 2025 shows that the manufacturing sector continues to shrink. This contraction results from uncertainty surrounding trade policies, tariffs, and declining demand.

Key PMI Component Analysis

A deeper dive into the report's sub-indexes reveals a widespread contraction.

• The New Orders Index, a key indicator of future production, remained in contraction territory for the fourth consecutive month, although it edged up slightly to 47.6%.

  
  

• The Production Index also stayed in contraction at 45.4%, reflecting a decrease in output. Only two of the six largest manufacturing sectors (Machinery; Computer & Electronic Products) reported growth.

Source: Manufacturing ISM® Report On Business® data.

• Employment: The labor market within the manufacturing sector also showed signs of weakness, with the Employment Index at 46.8%. Although a modest increase from the previous month, this figure indicates that companies are still reducing their workforce through layoffs.

  
  

• Supplier Deliveries: The growth to 56.1% is attributed to slower deliveries—primarily due to trade disruptions and not increased demand.

  
  

• The Prices Index registered a high 69.4%, indicating that raw material prices continued to increase. This puts a squeeze on manufacturers' profit margins, as they grapple with lower demand and higher input costs.

  
  

• Inventories and Imports: Inventories contracted further to 46.7%, while imports dropped sharply to 39.9%, reflecting both reduced demand and the impact of tariffs and trade policy uncertainty.

  
  

• On a somewhat positive note for future production, the Customers' Inventories Index is considered "too low," which could signal a need for replenishment and a potential boost to future orders.

  
  

• A sharp drop in the Imports Index to 39.9% highlights a significant pullback in inbound goods, while the New Export Orders Index at 40.1% points to weakening external demand. These figures suggest that both domestic and international markets are contributing to the manufacturing slowdown.

  
  

The May 2025 ISM Manufacturing Report reveals a concerning pattern with only one of the five key subindexes in expansion territory, down from two components in April. Supplier Deliveries was the sole component showing expansion (56.1%), while critical indicators such as New Orders (47.6%), Production (45.4%), and Employment (46.8%) all remained in contraction territory, though contracting at a slower rate than the previous month.

Industry Segmentation and Performance

While the overall manufacturing sector contracted, seven of 18 industries reported growth in May 2025, which is still a significant decrease in comparison to eleven industries in April. The expanding industries included:

• Plastics & Rubber Products

• Nonmetallic Mineral Products

• Petroleum & Coal Products

• Furniture & Related Products

• Electrical Equipment, Appliances & Components

• Fabricated Metal Products

• Machinery

Only two of the six largest manufacturing industries (Petroleum & Coal Products and Machinery) reported growth in May, compared to four in April, signaling a broadening weakness across major manufacturing sector.  

Industries reporting contraction included: Paper Products, Wood Products, Printing & Related Support Activities, Food, Beverage & Tobacco Products, Transportation Equipment, Chemical Products, and Primary Metals.

Operational Considerations: Supply Chain Vulnerability

The dramatic decline in imports (39.9%, down 7.2%) and exports (40.1%, down 3.0%) suggests severe disruptions in global trade flows that pose significant risks to manufacturing operations.

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A slowdown in U.S. factory activity is being compounded by significant trade-related friction, which is bogging down supply chains and creating severe operational uncertainty. Although the Supplier Deliveries Index rose to 56.1 percent, indicating longer lead times, this was not driven by strong demand. Instead, manufacturers report that shipments are getting stuck in a "trade mire," with disputes over who will bear the cost of tariffs causing delays.

The ongoing contraction in new orders, production, and employment highlights heightened risks of underutilized capacity, workforce reductions, and potential disruptions in critical manufacturing operations. For regulated sectors, these trends can complicate compliance with safety, quality, and labor standards, especially as companies may seek cost reductions or operational restructuring.

Trade Policy and Tariff Exposure

Trade policy uncertainty and tariffs continue to disrupt supply chains, as evidenced by slower supplier deliveries and plummeting import levels.

Industry comments from the ISM report highlight significant concerns about recently imposed tariffs and resulting retaliatory actions by other countries.

Companies face increased risk of supply interruptions, cost volatility, and the need for alternative sourcing strategies.

Source: @KevRGordon / X.com

Key Insights from May 2025 ISM Report

The May 2025 ISM Report on Business paints a challenging picture for the U.S. manufacturing industry. The continued contraction across key metrics underscores the impact of softening demand and economic uncertainties on the sector. While the broader economy remains resilient, the manufacturing industry is navigating a difficult period of adjustment.

Sources:

1. ISM

2. IndustryWeek