- KPI – June 2025: The Brief
- KPI – June 2025: State of Business – Automotive Industry
- KPI – June 2025: State of the Economy
- KPI – June 2025: Consumer Trends
- KPI – June 2025: Recent Vehicle Recalls
Economic activity in the manufacturing sector contracted in May for the third consecutive month, following a two-month expansion preceded by 26 straight months of contraction, according to the nation’s supply executives in the latest Manufacturing ISM Report On Business.
“U.S. manufacturing activity slipped further into contraction after expanding only marginally in February. Contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken,” says Susan Spence, MBA, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
Data shows 57% of manufacturing gross domestic product (GDP) contracted in May, up from 41% in April. The share of manufacturing sector GDP registering a composite PMI calculation at or below 45% (a good barometer of overall manufacturing weakness) was 5%, a 13% decrease compared to 18% in April.
Important Takeaways, Courtesy of the Manufacturing ISM Report on Business:
- Demand indicators were mixed, with the New Orders and Backlog of Orders Indexes contracting at slower rates, while the Customers’ Inventories and New Export Orders Indexes contracted more strongly. However, a “too low” status for the Customers’ Inventories Index is usually considered positive for future production.
- Regarding output, the Production Index increased from an alarmingly low reading the previous month, but factory output continued to contract in May, indicating that panelists’ companies are still revising production plans downward amid economic uncertainty. The Employment Index ticked up for a second consecutive month but remained in contraction, as head-count reductions continued. Companies generally opted for layoffs because they are quicker to implement than attrition.
- Inputs are defined as supplier deliveries, inventories, prices and imports. The Inventories Index entered contraction territory after expanding, as companies completed pull-forward activity ahead of tariffs. The Supplier Deliveries Index indicated a continual slow performance, reflecting ongoing delays in clearing goods through ports of entry. Tariff-induced price growth slowed slightly, while the Imports Index contracted significantly, down 7.2% compared to April.
“Of the six largest manufacturing industries, two (Petroleum & Coal Products and Machinery) expanded in May, compared to four in April,” affirms Spence.
What Respondents Are Saying, According to the Manufacturing ISM Report On Business:
“There is continued softening of demand in the commercial vehicle market, primarily related to higher prices and economic uncertainty. The impact of ever-changing trade policies of the current administration has wreaked havoc on suppliers’ ability to react and remain profitable. Vehicle manufacturers have already rolled price increases into their products to protect their bottom lines, but have not been as cooperative with their supply bases. This has resulted in a high occurrence of suppliers falling into financial distress.” [Transportation Equipment]
“Tariffs, avian influenza and broader commodity markets continue to impact business conditions. The volatility of all three makes business planning and overall conditions challenging.” [Food, Beverage & Tobacco Products]
“Government spending cuts or delays, as well as tariffs, are raising hell with businesses. No one is willing to take on inventory risk.” [Computer & Electronic Products]
“Most suppliers are passing through tariffs at full value to us. The position being communicated is that the supplier considers it a tax, and taxes always get passed through to the customer. Very few are absorbing any portion of the tariffs.” [Chemical Products]
“Tariff uncertainty is impacting new international orders. Tariffs are also the main reason our Asia customers are requesting delayed shipments.” [Fabricated Metal Products]
“There is continued uncertainty regarding market reaction to the recently imposed tariffs and resulting actions by other countries. The rare earth restrictions being imposed are of high concern in the near term.” [Machinery]
“The administration’s tariffs alone have created supply chain disruptions rivaling that of COVID-19.” [Electrical Equipment, Appliances & Components]
“We have entered the waiting portion of the wait and see, it seems. Business activity is slower and smaller this month. Chaos does not bode well for anyone, especially when it impacts pricing.” [Primary Metals]
“Tariff whiplash continues, while the easing of tariff rates between the U.S. and China in May was welcome news, the question is what happens in 90 days. We are doing extensive work to make contingency plans, which is hugely distracting from strategic work, plus it is also very hard to know what plans we should actually implement. The 10% tariff on other countries is impactful as well, and it is unclear if/when deals will be made.” [Miscellaneous Manufacturing]
“Uncertainty due to the recent tariffs continue to weigh on profitability and service. An unresolved (trade deal with) China will result in empty shelves at retail for many do-it-yourself and professional goods.” [Paper Products]