US manufacturing activity hit its highest level in four years in May, survey data showed on Monday, beating analyst expectations as the world’s largest economy weathers shocks from the Iran war.
The reading beat analyst expectations, with economists surveyed by Dow Jones Newswires and the Wall Street Journal forecasting the index to come in at 53.2 percent.
A measure of prices remained in expansion but at a slower rate than the month before, according to ISM’s survey data.
“Of the five subindexes that make up the PMI, the New Orders index indicated faster growth compared to the previous month, the Supplier Deliveries index stayed the same, the Production Index grew at a faster rate, and the Employment and Inventories indexes remained in contraction, though both improved,” said Susan Spence, chair of the survey committee.
The Iran war continued to feature prominently in respondents’ comments, with 69 percent of comments in total being classified as “negative.”
Price volatility was also a key concern.
“The Middle East conflict is triggering shipment delays and uncertainties,” said one respondent in the machinery sector.
“Elevated gas prices and inflation will surely impact our purchases. However, over the last quarter, we’ve seen increased demand that was unexpected.”
An AI-powered tech sector boom has helped the US economy weather recent supply shocks from the Iran war, but respondents flagged concerns about the knock-on effects of the increased demand.
“Continued dynamic random-access memory (DRAM) volatility, increased gas prices and tariffs are causing long lead constraints and price hikes that customers are not willing to bear,” said one respondent in the electrical equipment, appliances and components sector.
“Panic is starting within our industry.”
Another survey participant in the computer and electronic products industry also pointed to concerns about price rises due to heightened demand from the artificial intelligence sector.
US President Donald Trump has implemented a slew of wide-ranging economic policies since returning to power last year, including an upending of the global trade order with both sector-wide and globally applied tariffs.
Many of the tariffs were struck down by the Supreme Court in February, with uncertainty abounding on the refund process.
“Confusion abounds around tariff refunds. We purchase many imported goods but in most cases are not the importer of record, so it is currently unclear to what we may be entitled,” said one respondent in the food, beverage and tobacco products sector.
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