The manufacturing activity in the United States rebounded in May as demand for goods remains strong, which could further allay fears of an impending recession, but a measure of employment in the factories contracted for the first time in almost a year.
The Institute of Management and Supply (ISM) said on Wednesday that its national factory activity index rebounded to a reading of 56.1 last month, from 55.4 in April. A reading above 50 indicates an expansion in the manufacturing sector, which accounts for 12% of the US economy.
Economists polled by Reuters had expected the index to fall to 54.5. The survey followed a report last Friday that showed a sharp rise in consumer spending in April.
The nation has been gripped by fears of a recession, while the Federal Reserve aggressively raises interest rates to control inflation. The US central bank has raised its policy rate by 75 basis points since March and is expected to raise it by half a percentage point at each of its upcoming meetings this month and in July.
Demand for goods remains resilient despite spending returning to services such as travel, dining out and entertainment. Spending on goods increased when the COVID-19 pandemic restricted movement.
The ISM survey’s new orders sub-index rose to 55.1 from 53.5 in April. The manufacturing sector has been constrained by supply chains, further entangled by Russia’s unprovoked war on Ukraine and new COVID-19 lockdowns in China.
The ISM measure for supplier deliveries it fell to 65.7 last month from 67.2 in April. A reading above 50% indicates a slowdown in deliveries to factories. The survey’s pending orders indicator rose to 58.7 from 56.0 in April.
The news on inflation was encouraging. The gauge of prices paid by manufacturers dipped to a reading of 82.2 from 84.6 in April, supporting the view that inflation has probably peaked.
However, manufacturers are struggling to find workers as the factory employment index fell to 49.6 from 50.9 in April. Amid tightening financial conditions, the first drop below 50 since last August could also be a possible red flag.
However, with a record 11.5 million unfilled jobs across the economy at the end of March, a shortage of workers appears to be to blame for the decline in factory employment.