Why It Matters
American manufacturers are seeing their strongest activity in four years, a development with direct implications for Idaho’s industrial and agricultural sectors. Rising input prices, supply chain strain, and growing demand are reshaping the economic landscape for businesses that depend on domestic production and imported raw materials alike.
What Happened
The Institute for Supply Management reported Monday that its manufacturing Purchasing Managers’ Index climbed to 54.0 in May, up from 52.7 in April. The reading marks the highest level for the index since May 2022 and came in above economist forecasts, which had anticipated a rise to 53.0.
Any PMI reading above 50 signals expansion in the manufacturing sector, which represents roughly 9.4% of the overall U.S. economy. The sector has now posted growth for five consecutive months, with much of the baseline momentum attributed to sustained spending on artificial intelligence infrastructure.
Businesses appear to be pulling forward orders in anticipation of continued price increases and product shortages — a pattern driven in part by the ongoing U.S.-Israeli military conflict with Iran, which has closed the Strait of Hormuz and sharply disrupted global commodity shipping. Energy, aluminum, and fertilizer costs have all moved higher as a result.
By the Numbers
- 54.0 — May PMI reading, highest since May 2022
- 56.8 — New orders index in May, up from 54.1 in April
- 82.1 — Prices paid index in May, down slightly from April’s 84.6 but still near multi-year highs
- 32 consecutive months — Length of the manufacturing employment contraction streak
- 77,000 — Approximate factory jobs lost since January 2025
Supply Chains and Inflation
The supplier deliveries index held steady at 60.6, signaling that delivery times remain slow — a condition that typically reflects overwhelmed supply chains. Delays were already elevated following the broad tariff regime imposed last year, which the U.S. Supreme Court struck down in February. The Trump administration has since imposed new import duties, defending them as essential to rebuilding domestic industrial capacity.
Factory-gate prices remain elevated even as the pace of increases slowed modestly. The government reported last week that overall inflation accelerated at its fastest rate in three years during April. That inflationary pressure has left financial markets expecting the Federal Reserve to hold its benchmark interest rate in the 3.50%–3.75% range well into next year, with little room to cut.
For Idaho farmers and businesses, the combination of rising fertilizer costs and persistent supply delays tied to global conflict adds pressure on operating margins heading into the summer. Trade tensions remain a concern as well — U.S. farmers have expressed skepticism over a reported deal for China to purchase $17 billion annually in American agricultural products, uncertain whether commitments will translate into actual purchases.
Jobs Picture Remains Weak Despite Output Gains
Despite the surge in orders and output, factory employment has not recovered. The ISM’s employment sub-index recorded its 32nd straight month of contraction in May. The pattern reflects a deliberate posture among manufacturers: instead of expanding headcount, companies are managing workforce levels through attrition, selective layoffs, and leaving open positions unfilled.
Since January 2025, U.S. manufacturing employment has declined by approximately 77,000 positions. The disconnect between rising output and shrinking payrolls suggests that productivity gains and inventory front-loading — rather than new hiring — are driving the headline PMI numbers.
Zoom Out
The broader trade and geopolitical environment continues to inject uncertainty into the manufacturing picture. The Strait of Hormuz closure has rippled beyond American factories, with European and Asian manufacturers also absorbing supply shocks from rising raw material costs. Meanwhile, Canadian trade relations remain in flux, with Canadian leadership pursuing a restructured economic partnership with the United States as global trade patterns shift.
What’s Next
Analysts will be watching whether the front-loading surge in orders is sustainable or whether demand normalizes once businesses have rebuilt sufficient inventory buffers. The Federal Reserve’s next rate decisions and the trajectory of Iran conflict negotiations will be key factors. Any easing of Strait of Hormuz disruptions could relieve commodity price pressure, though supply chain normalization is expected to take months.
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