US Manufacturing Contracts a 3rd Straight Month

U.S. manufacturing contracted for a third straight month in May and suppliers took longer to deliver inputs amid tariffs, potentially signaling looming shortages of some goods.

The Institute for Supply Management (ISM) said Monday that its manufacturing PMI edged down to a six-month low of 48.5 last month from 48.7 in April. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.2% of the economy.

The PMI, however, remains above the 42.3 level that the ISM says over time indicates an expansion of the overall economy. Economists polled by Reuters had forecast the PMI rising to 49.3. The survey suggested manufacturing, which is heavily reliant on imported raw materials, had not benefited from the de-escalation in trade tensions between President Donald Trump's administration and China.

Economists say the on-gain, off-again manner in which the import duties are being implemented is making it difficult for businesses to plan ahead. Another layer of uncertainty was added by a U.S. trade court last week blocking most of Trump's tariffs from going into effect, ruling that the president overstepped his authority. But the tariffs were temporarily reinstated by a federal appeals court on Thursday.

The ISM survey's supplier deliveries index increased to 56.1 from 55.2 in April. A reading above 50 indicates slower deliveries. A lengthening in suppliers' delivery times is normally associated with a strong economy. But in this case slower supplier deliveries likely indicated bottlenecks in supply chains related to tariffs.

In April, the ISM noted delays in clearing goods through ports. Port operators have reported a decline in cargo volumes. The ISM's imports measure dropped to 39.9 from 47.1 in April. Production at factories remained subdued, while new orders barely saw an improvement.

The ISM survey's forward-looking new orders sub-index inched up to 47.6 from 47.2 in April. Its measure of prices paid by manufacturers for inputs eased to a still-high 69.4 from 69.8 in April, reflecting strained supply chains.

Factories continued to shed jobs. The survey's measure of manufacturing employment nudged up to 46.8 from 46.5 in April. The ISM previously noted that companies were opting for layoffs rather than attrition to reduce headcount.