The Institute for Supply Management released its monthly manufacturing Purchasing Managers Index (PMI) on June 2, reflecting May activity, which revealed a continued deceleration in industrial activity amid tariff-driven uncertainty.

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The PMI — regarded as a key indicator of U.S. industrial health — was down 0.2-percentage-points month-over-month to a reading of 48.5%, following a 0.3-point drop during April. It marked the third straight month that the PMI was in contraction territory (anything below 50.0%) after a brief expansion in January-February that was likely driven by inventory frontloading ahead of tariff impacts.

The May decline was below the expectations of a rise to 49.3% forecasted by economists polled by Reuters.

More granularly, the latest report showed that output increased from an alarmingly low reading the previous month, with the PMI’s subindex for production up 1.4 points to 45.4% and new export orders sunk three points to 40.1%. Reflecting tariff impacts, the imports index plummeted 7.2 points to 39.9%, which ISM noted as “extreme contraction” territory. Meanwhile, the index for new orders increased 0.4 points to 47.6% and prices were down 0.4 points at 69.4%.

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Of the five subindexes that directly factor into the PMI, only one — supplier deliveries — was in expansion territory, down from two in April.

Here’s how the overall Manufacturing PMI has looked in bar chart form over the past 12 months:

source: tradingeconomics.com

Of the 17 manufacturing industries the PMI reflects, seven reported growth in May, led by Plastics & Rubber Products, Nonmetallic Mineral Products and Petroleum & Coal Products. The seven industries in contraction were led by Paper Products and Wood Products.

PMI Respondent Commentary 

ISM included a selection of commentary from its Manufacturing PMI survey respondents:

• “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-percent 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]