The U.S. manufacturing sector showed mixed performance in May 2024. The ISM Manufacturing PMI contracted for the second straight month, with weakening demand and shrinking backlogs presenting challenges. However, the S&P Global US Manufacturing PMI ticked up slightly, indicating modest growth driven by a return to expansion in new orders.

Despite the near-term demand and cost pressures, the manufacturing outlook remains cautiously optimistic. Production and employment continued to grow, while business confidence picked up with firms expressing positive expectations for the coming months. Moreover, 147 manufacturing facility openings and expansions were announced in May, spanning strategic sectors like advanced batteries, solar energy, and building materials. These projects represent hundreds of millions in new investments set to create thousands of jobs, signaling ongoing bullishness on the potential for U.S. manufacturing growth in the medium to long term.

ISM Manufacturing Report

The ISM Manufacturing PMI registered 48.7% in May, down from 49.2% in April. This marks the second straight month of contraction below the 50% threshold, indicating the manufacturing sector shrank overall. The May reading also reflects a faster rate of contraction compared to April. 

Subindexes showing contraction include New Orders at 45.4% and Backlog of Orders at 42.4%. This points to declining demand and difficulties in building backlogs amidst weak new business inflows. Production and Employment indexes did maintain expansionary readings above 50%, but Supplier Deliveries slowed at 48.9%, showing supply chains recovering further. 

The latest data shows new orders and backlogs worsening in May. Declining orders make it harder to sustain production gains without increasing inventories. Panelists cited inflation impacts and weak demand in areas like housing and construction. This presents challenges for the manufacturing sector’s growth prospects in the near term.

With two months of contracting PMI readings, the manufacturing sector has shown greater weakness after a brief return to growth in March. Challenges remain around demand, orders, and backlogs even as output indicators hold in expansion territory.

Production and employment are growing

The ISM Production Index registered 50.2% in May, indicating output grew but at a slower rate than April’s 51.3% reading. This marks four out of five months of rising production. The Employment Index posted 51.1% in May, up from 48.6% in April, signaling job growth returned after seven previous months of declines.  

The sustained expansions in production and employment reflect manufacturers’ ability to maintain output gains and hiring despite issues with new orders and backlogs. However, slowing production growth and panelist comments point to challenges in translating orders to output moving forward.

Raw materials prices are increasing  

The ISM Prices Index registered 57.0% in May, down from April’s 60.9% reading but still in strong expansion territory. This indicates raw materials prices increased for the fifth straight month, though at a slightly slower pace. Panelists reported ongoing price increases, especially for metals, fuel, freight, and plastics.

Exports and imports are growing

The New Export Orders Index came in at 50.6% in May, up from 48.7% in April, indicating exports expanded again after one month of contraction. Similarly, the Imports Index registered 51.1% in May, showing continued growth in imports though at a slower pace than in April. The data reflects a modest pickup in trade activity.

The ISM report shows production and employment sustaining growth amidst weakening demand, while input costs and trade expand moderately. This presents a mixed picture of the manufacturing sector’s health going into the late spring months.

S&P Global US Manufacturing PMI

The S&P Global US Manufacturing PMI ticked up to 51.3% in May from 50.0% in April, indicating overall modest growth. A key driver was new orders returning to expansion after contracting slightly in April. 

The expansion in new orders points to stabilizing demand conditions. Although still muted overall, the positive movement in orders bodes well for production in the coming months. Firms also noted signs of improving demand from key export markets like Europe and Asia.

Faster rises in production and employment

With new orders expanding again, manufacturers ramped up production growth in May. Employment growth also accelerated in May, increasing at the fastest pace since July 2023. Firms boosted hiring to rebuild staffing that had been reduced earlier in 2024. Job gains were supported by positive expectations for the future as the growth outlook improved.

Business confidence picks up

The S&P report also showed business confidence improved in May, with firms more optimistic about the 12-month outlook. Expectations of sustained new order growth and capacity expansion plans boosted sentiment. Positive views of the future supported job gains and inventory building last month.

Input cost inflation hits 13-month high  

On the price front, the S&P data showed input cost inflation accelerated for the third straight month. The latest increase was the sharpest in over a year, with firms facing rising commodity, fuel, and transportation prices especially. Selling price inflation eased slightly in May but remained elevated overall. With input cost pressures continuing to build, selling price hikes may accelerate again in the coming months.

The pickup in confidence aligns with the demand improvement indicated in May’s report data. However, the surge in input costs presents an ongoing challenge to margins and pricing for manufacturers.

Major new manufacturing facility announcements and expansions

Let’s take a look at some of the newest manufacturing facilities that were announced in May 2024.

ION Storage Systems opens advanced battery manufacturing facility in Maryland

ION Storage Systems commissioned one of the largest solid-state battery production plants in the U.S. located in Beltsville, Maryland. The state-of-the-art pilot facility aims to produce 1MWh of cells this year, scaling up to 10MWh by 2025. The company ultimately targets 500MWh capacity by 2028. The plant signals major growth potential in domestic battery manufacturing.

GAF Energy opens new solar roofing facility in Texas

GAF Energy, a leading provider of integrated solar roofing systems, inaugurated its new 450,000-square-foot manufacturing complex in Georgetown, Texas. The state-of-the-art facility boosts GAF’s solar roof production capacity by 500% to become the world’s largest at 300 megawatts per year.

Boviet Solar invests in major solar panel manufacturing facility in North Carolina  

Boviet Solar announced plans for a $294 million, 1 million square foot solar panel production plant in Pitt County, North Carolina. The facility expects to create over 900 advanced manufacturing jobs and bolsters Boviet’s capacity to supply high-end photovoltaic modules to the U.S. market.

The new projects from both long-standing companies and relative newcomers show ongoing bullishness on domestic manufacturing growth in strategic areas like renewable energy and electrification. The investments support job creation and expansion in local economies as well.

Future US Manufacturing Outlook

The outlook remains cautious given contracting ISM metrics and signs of slowing growth in the S&P PMI data. Production may get ahead of demand if new orders don’t pick up. Still, improved business confidence and plans for capacity expansion point to optimism for a second-half rebound.

Moreover, the wave of new manufacturing facility openings and expansions announced in May shows ongoing bullishness on US manufacturing growth in strategic sectors. Hundreds of millions in new investments and thousands of added jobs bode well for certain industries, regional economies, and the overall sector’s trajectory further out.

While near-term risks persist around demand, costs, and slowing output, the manufacturing sector retains positive fundamentals for the medium to long term. The latest expansion projects and improved sentiment indicate many firms look for manufacturing to power through present challenges.