U.S. ISM Manufacturing Index (May 2025)

ISM Manufacturing Index Contracts for Fourth Consecutive Month in May

• The ISM Manufacturing Index fell to 48.5 in May, down from 48.7 in April. 
• Seven of 18 industries reported growth for the month, down from eleven in April. Furthermore, 57% of manufacturing GDP contracted in May, well above the 41% share recorded in April.
• Demand conditions continued to be weak on aggregate, but some improvement was seen in May. The new orders index improved marginally but remained in contraction territory (47.6 vs. 47.2 in April), while new export orders declined further into contraction (40.1 vs. 43.1 in April). The backlog of orders also continued to contract, but at a slower pace (47.1 vs. 43.7 in April) while imports collapsed (39.9 vs. 47.1 in April), sinking below pandemic levels.
• The production index also saw a slowing pace of contraction in May, rising to 45.4 from 44.0, marking the first increase in the index since January. Employment contracted at a slower pace than in April as well, ticking up to 46.8.
• Price gains remained on par with that seen in April, coming in at 69.4. The prices index remains near a three-year high.  

Key Implications

• Manufacturing activity continued to slow in May as elevated uncertainty related to trade policies continued to disrupt supply chains and production schedules. Respondents indicated minimal relief from the temporary suspension of higher tariffs earlier in the month, as the threat of higher levies continued to require contingency planning and existing tariffs continued to push input costs higher.
• With most tariff policies now in effect for two months we have seen the feedthrough to prices have a dampening effect on demand and by extension production. The slowing pace of contraction in most demand categories in May indicates the initial drawdown has likely passed. But with the Federal Reserve maintaining a restrictive policy stance and the administration looking to double steel & aluminum tariffs later this week, activity is likely to remain soft through the remainer of the year barring a material shift in trade policy.

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.