U.S., May factory activity falls to 48.5...lowest in six months

Korea Economic Daily

Summary

The U.S. May manufacturing index was reported at 48.5, signaling economic contraction and marking the lowest level in six months.
Both the import index and export indicator fell to their lowest points in 16 and 5 years, respectively, increasing trade and supply chain uncertainty.
High material costs and frequent tariff changes have led some companies to suspend investment plans.

Imports hit 16-year low due to tariffs; export indicators also at their lowest in 5 years

In the United States, factory activity in May worsened to 48.5, declining for the third consecutive month and reaching the lowest level in six months.

On the 2nd (local time), the Institute for Supply Management (ISM) reported that the U.S. May manufacturing index dropped by 0.2 points from the previous month to 48.5. This is the lowest figure in six months. A reading below 50 indicates economic contraction.

This marks the third straight month of contraction this year, highlighting the widespread uncertainty caused by uneven implementation and frequent changes in tariffs.

Additionally, as companies pulled back in the face of tariff hikes, the ISM import index posted the largest monthly decline on record, falling 7.2 points to 39.9. This is the lowest level in 16 years.

This contrasts with earlier in the year, when some companies increased imports to brace for tariffs. The export indicator fell to its lowest level in five years, reflecting retaliatory tariffs imposed by other countries on U.S. manufacturers.

A decline in demand due to higher tariffs is also evident. New orders decreased for the fourth consecutive month, and order backlogs shrank at the slowest rate since September 2022.

According to the ISM survey, the supplier deliveries index rose from 55.2 in April to 56.1. A value above 50 indicates slower deliveries. While longer supplier delivery times are generally associated with economic booms, this delay was interpreted as a sign of tariff-related supply chain bottlenecks. In April, the ISM pointed to shipment clearance delays at ports.

Confusion over frequently changing trade policies is also making it difficult for supply managers to procure goods and materials efficiently. ISM’s supplier delivery index hit its highest level since June 2022, indicating persistent delays.

The survey also showed that high material costs remain a problem for producers. The group’s price index stayed elevated at 69.4, with little fluctuation.

According to government statistics last week, consumer spending in April barely grew, marking the weakest quarter in nearly two years. Some companies have suspended investment plans due to uncertainty surrounding the hasty implementation of additional tariffs.

Guest reporter Kim Jeong-a kja@hankyung.com