Key insights
- US manufacturing activity expanded at a faster pace in May, with the ISM PMI reaching a four-year high. While prices paid eased slightly, they remain elevated. The ongoing conflict in Iran is a significant headwind, impacting supply chains and contributing to oil price volatility and inflation fears. This suggests continued inflationary pressures and potential supply chain disruptions, which could influence Fed policy and corporate costs.
Investing.com - Activity in the U.S. manufacturing sector expanded a faster rate in May, while a measure of prices paid by these companies eased slightly, as firms dealt with headwinds stemming from the war in Iran.
The Institute for Supply Management’s purchasing managers index for last month stood at 54.0, compared to 52.7 in April and economists’ expectations of 53.3. It was the highest mark in four years. A reading above 50 typically denotes expansion.
Meanwhile, the survey’s prices index stayed in increasing territory, coming in at 82.1. The figure was down by April’s mark of 84.6 and estimates of 85.3.
Among the comments from respondents, the Iran war was mentioned in 42% of panelists, with 57% mentioning pricing volatility as an issue for their businesses, according to Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, in a statement.
The more than three-month old conflict between the U.S. and Iran has threatened to have global implications. The effective closure of the Strait of Hormuz, a vital waterway for a fifth of the world’s oil and natural gas, has powered a surge in energy prices and fueled fears of a burst in inflation.
Diplomatic efforts to conclude the war have dragged on for weeks, with hopes for an imminent peace deal repeatedly dented by sporadic and limited exchanges of strikes. Some analysts expect Washington and Tehran to eventually reach a breakthrough, although the timing of such an agreement is mired in uncertainty. Brent crude prices, the global oil benchmark, have continued to float well above pre-war levels, but have dipped from peaks above $100 a barrel earlier in the war.
Respondents to ISM survey from a variety of industries highlighted the effect of the fighting. A panelist from the transportation equipment industry, for instance, said the conflict is starting to "directly and negatively impact cost of supply chain," while another from the machinery segment flagged the war is "triggering shipment delays and uncertainties."
Expectations have grown that the inflation wave may persuade the Federal Reserve to raise interest rates in response. Markets are currently pricing in that the Fed will lift rates at least once this year, according to Reuters, citing CME’s FedWatch Tool.
"Price pressures eased a touch but the prices paid index remains at a level that will concern the Fed," analysts at Capital Economics said in a note.
AI computing powers are changing the stock market. Investing.com's ProPicks AI includes dozens of winning stock portfolios chosen by our advanced AI. Our flagship Tech Titans strategy doubled the S&P 500 within 18 months, including notable winners like Super Micro Computer (+185%) and AppLovin (+157%). Which stock will be the next to soar?