US manufacturing sector rises in May: ISM By Reuters

WASHINGTON (Reuters) – U.S. manufacturing activity rebounded in May as demand for goods remained strong, which could ease fears of a looming recession, but the gauge of factory employment shrank for the first time in nearly a year.

The Institute of Supply and Management (ISM) said on Wednesday that its national factory activity index rebounded to a reading of 56.1 last month from 55.4 in April. A reading above 50 indicates an expansion in the manufacturing sector, which accounts for 12% of the US economy.

Economists polled by Reuters had expected the index to fall to 54.5. The survey followed a report last Friday that showed a sharp rise in consumer spending in April.

Recession fears gripped the nation as the Federal Reserve aggressively raised interest rates to curb inflation. The US central bank has raised interest rates by 75 basis points since March, and is expected to raise it by half a percentage point at each of its upcoming meetings this month and in July.

Demand for goods remains elastic even though spending has returned to services such as travel, dining out, and entertainment. Spending on merchandise has surged as the COVID-19 pandemic restricts travel.

The sub-index of new orders in the ISM survey rose to 55.1 from 53.5 in April. The manufacturing sector has been constrained by supply chains, further implicated by Russia’s unprovoked war on Ukraine and the new COVID-19 lockdowns in China.

The ISM measure of supplier delivery fell to 65.7 last month from 67.2 in April. A reading above 50% indicates a slowdown in deliveries to factories. The survey’s pending orders index rose to 58.7 from 56.0 in April.

The inflation news was encouraging. The measure of prices paid by manufacturers fell to a reading of 82.2 from 84.6 in April, supporting the view that inflation has likely peaked.

However, manufacturers are struggling to find workers as the Factory Employment Index fell to 49.6 from 50.9 in April. Amid tightening financial conditions, the first dip below 50 since last August could be a potential red flag.

However, with 11.5 million job vacancies recorded across the economy at the end of March, it appears that labor shortages are to blame for lower factory employment.

(Reporting by Lucia Muticani, Editing in Spanish by Carlos Serrano)