Trump's Manufacturing Narrative Weakens As May Data Shows Sharper Contraction, Stubborn Inflation

President Donald Trump had promised a manufacturing renaissance, but after a hopeful start to his new term, sentiment in the sector is now sliding fast, with data showing another contraction in factory activity in May.

The Institute for Supply Management's Manufacturing Purchasing Managers Index edged down to 48.5% in May from 48.7% in April, signaling the fastest pace of contraction since late 2024.

The outcome surprised economists, who expected a reading of 49.5%. It underscores persistent weakness in industrial production just months after a brief February rebound.

“In May, U.S. manufacturing activity slipped further into contraction after expanding only marginally in February,” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee.

Stubborn Inflation On The Input Side As Tariffs Bite

Even as output softens, cost pressures are refusing to ease. The Prices Index remained in increasing territory at 69.4%, just slightly below April's 69.8%, and still at levels not seen in three years. That reflects ongoing supply chain bottlenecks, port delays, and the lingering effects of tariffs.

Inventories have also swung into contraction, while supplier deliveries remain sluggish. The Imports Index plunged by 7.2 points, showing a sharp decline in inbound goods, and hinting at weakened demand or procurement challenges linked to evolving trade policies.

New orders continued to shrink for the fourth month in a row, registering 47.6%, though slightly better than April's 47.2%. Meanwhile, the Backlog of Orders Index showed some recovery from 43.7% to 47.1%, though it remains in contraction territory.

Despite a slight increase in the Employment Index from 46.5% to 46.8%, manufacturing jobs are still shrinking. Companies are cutting headcounts, often favoring layoffs over attrition for quicker cost reduction.

In the words of a transportation equipment executive, "There is continued softening of demand in the commercial vehicle market, primarily related to higher prices and economic uncertainty."

The respondent added “the impact of ever-changing trade policies of the current administration has wreaked havoc on suppliers' ability to react and remain profitable.”

Market Reactions: Dollar Drops, Bond Yields Rise

The U.S. dollar index, tracked by Invesco DB USD Index Bullish Fund ETF UUP, fell to 98.7 levels during Monday’s morning trading in New York, its lowest since April 23, as traders weigh weaker economic momentum.

Meanwhile, long-duration bonds sold off, with yields on the 30-year Treasury note climbing 5 basis points to 4.97%. The iShares 20+ Year Treasury Bond ETF TLT dropped 1.2%, as concerns over U.S. debt trajectory persist.

Equity markets also started the week on a downbeat tone. The S&P 500 index slid 0.5%, reflecting concerns that persistent cost inflation could squeeze corporate margins further.

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