The U.S. manufacturing sector is in another downturn, with the PMI shrinking for the third consecutive month in May.

The latest Manufacturing Purchasing Managers' Index (PMI) report released by the Institute for Supply Management (ISM) shows that manufacturing activity in the United States contracted for the third consecutive month in May. Prior to this, the manufacturing sector briefly expanded for two consecutive months, following 26 months of continuous contraction. The report was published by Susan Spence, Chair of the ISM Manufacturing Business Survey Committee. The May manufacturing PMI index recorded 48.5%, a 0.2 percentage point decrease from April's 48.7%, continuing to remain below 50% in the contraction zone. Although the overall economy has been expanding for 61 consecutive months, the manufacturing sector has clearly not rebounded in sync. Generally, a PMI index above 42.3% indicates that the overall economy is expanding. Specifically, the new orders index was 47.6%, slightly higher than April's 47.2%, but still contracting for the fourth consecutive month. The production index rose to 45.4% in May, a 1.4 percentage point increase from April's 44%, but still in a contraction phase. The price index remained in the expansion range at 69.4%, slightly lower than April's 69.8%. The backlogs of orders index rose to 47.1%, the employment index saw a slight increase to 46.8%, but overall remained in contraction, indicating that manufacturing firms continue to control costs through layoffs, with layoffs occurring at a faster rate than natural attrition. The supplier deliveries index recorded 56.1%, higher than April's 55.2%, indicating a continued slowing in deliveries. It is worth noting that in the ISM report, the supplier deliveries index is the only indicator interpreted in reverse, with a reading above 50% reflecting slower deliveries, usually related to economic recovery and strengthening customer demand. The inventory index dropped significantly from 50.8% in April to 46.7%, re-entering the contraction zone. The new export orders index fell to 40.1%, a 3 percentage point decrease from April; while the import index plummeted to 39.9%, a significant 7.2 percentage point drop from April's 47.1%, indicating a continued weakening of external demand and a near "sharp brake" in import activity. Spence pointed out that since a brief expansion in February, the contraction trend in May has intensified. While most indicators reflecting demand and output have shown a slowing contraction, the overall weak trend remains unchanged. On the demand side, the contraction of new orders and backlogs of orders has slowed, but customer inventories and export orders have seen an intensified contraction. Generally, low customer inventories are seen as a positive signal for future production. On the output side, although the production index has risen slightly, it remains low, indicating that businesses continue to adjust production plans downward in the face of economic uncertainty. The employment index saw a slight increase for the second consecutive month, but still remains in the contraction zone, reflecting businesses' tendency towards rapid layoffs. In terms of inputs, including supplier deliveries, inventory, prices, and imports, inventory levels fell after businesses advanced purchases to avoid tariffs, while slow delivery of supplier deliveries continued to reflect ongoing customs clearance issues. Rising prices due to tariffs have slightly slowed, and the significant drop in the import index highlights the weakness in import demand. In May, 57% of the US manufacturing GDP was in contraction, significantly higher than April's 41%. Meanwhile, the portion of manufacturing GDP with a PMI of less than or equal to 45% decreased from 18% in April to 5% in May, indicating a slight reduction in the areas of manufacturing "severely weak." Among the six major manufacturing industries, only the petroleum and coal products and machinery industries achieved expansion in May, while four industries were in expansion in April. The seven manufacturing industries that saw growth in May were: plastics and rubber products, non-metallic mineral products, petroleum and coal products, furniture and related products, electrical equipment, household appliances and components, metal products, and machinery. The seven industries in contraction were: paper products, wood products, printing and related activities, food, beverages and tobacco products, transportation equipment, chemical products, and basic metals. Feedback from manufacturing participants generally reflects the continued impact of tariffs, economic uncertainty, and supply chain issues on businesses. A manufacturer of transportation equipment stated that due to price increases and uncertain economic prospects, demand in the commercial vehicle market continues to weaken. The constantly changing trade policies have severely disrupted the supply chain, leading to financial difficulties for some suppliers. A food and beverage company mentioned that tariffs, avian influenza, and volatility in commodity markets have made business planning extremely challenging. An electronics manufacturer indicated that government spending cuts and tariffs have made businesses unwilling to take on inventory risks. Respondents in the chemical products sector stated that nearly all suppliers have fully passed on the tariffs to customers, viewing them as a "tax burden." A metal products company mentioned that international orders have been affected by tariff uncertainties, with Asian customers requesting delayed shipments. The machinery industry is concerned that restrictions on rare earths could have an impact in the short term; and electrical equipment manufacturers even believe that the current tariff policies have as much impact on the supply chain as the pandemic. Some businesses mentioned that they are currently in a "waiting phase" observing period, with business activities noticeably slowing down and market prices becoming more unstable. A diversified manufacturer mentioned that the easing of tariffs between China and the US in May was positive news, but the future development after "90 days" remains unclear. Enterprises have begun to develop multiple contingency plans, which disrupt strategic deployment and make it difficult to determine which plan should be prioritized. Another paper product company warned that if the US-China trade agreement is not reached, multiple consumer sectors will face the risk of shortages.