Insights 
VT 
The ISM manufacturing index for May 2025 was recorded at 48.5, falling short of the 49.5 estimate. The Prices Paid index slightly decreased to 69.4 from 69.8 the previous month.
Employment improved slightly to 46.8, up from 46.5. New Orders also saw an increase, rising to 47.6 from 47.2, while Production rose to 45.4 from 44.0. However, Inventories declined significantly to 46.7 compared to 50.8 last month.
Supplier Deliveries Indicate Changing Dynamics
Supplier Deliveries rose to 56.1, indicating slower deliveries as the economy picks up. Customer Inventories fell to 44.5 from 46.2, while the Backlog of Orders increased to 47.1 from 43.7.
New Export Orders dropped to 40.1 from 43.1, while Imports fell sharply to 39.9 from 47.1. The overall Manufacturing PMI® was slightly down to 48.5, from 48.7 in April.
Despite these fluctuations, it was noted that the economy has continued expanding for 61 months following a brief contraction in April 2020. The general performance of the indices reflects varying levels of contraction within the manufacturing sector.
The recent reading of the ISM manufacturing index below the neutral 50 mark indicates that factory activity continued to shrink in May, contrary to expectations of a mild rebound. While this result deviated from predictions, it was not so far off as to appear alarming. Still, its proximity to April’s result signals a lack of upward momentum rather than a one-off dip.
The decline in the Prices Paid index, albeit small, shows a modest cooling of input inflation after recent strength. Nevertheless, the figure remains considerably elevated. Higher costs persist along the supply chain, which may lead to cautious pricing strategies across sectors, especially where margins are already under pressure.
Employment and Demand Dynamics
Employment inched forward, suggesting that reductions in manufacturing jobs may be slowing. Although the absolute level is low and still indicative of contraction, there are hints that firms are trimming workforce losses rather than actively dismissing workers. That subtle shift could constrain downside volatility in labour-sensitive contracts.
Increased readings for New Orders and Production numbers imply that demand, although weak, may be stabilising. These are early signs. Production gains when inventories are shrinking usually point to efforts by firms to satisfy sales with existing stock rather than ramping up activity, which is consistent with weaker imports and export orders.
A sharper fall in Inventories could reflect leaner management rather than concern, especially when paired with rising backlogs. If producers are seeing orders held up faster than they can deliver, yet are still drawing on inventory, some pent-up demand may be building below the surface.
Supplier Deliveries rose—a reflection of slower delivery times. In isolation, this can suggest bottlenecks or improving demand. Paired with lean inventories and growing backlogs, the longer lead times are not likely to be driven by supplier hesitation. They are more likely a sign that demand elasticity is starting to return in some sub-sectors, particularly where domestic reordering activity is underway.
Customer Inventories falling once again suggests that clients remain wary of overstocking. That care, in combination with the increases in manufacturer backlogs, sets up a scenario where sudden order flows may emerge in the short term.
The reduced level in Exports and the sharp drop in Imports, however, paint a stern picture for global trade conditions as they relate to domestic manufacturing activity. Weakness abroad and restrained consumption at home are likely feeding into each other. Import-heavy manufacturing chains, especially those with Asian exposure, may feel added pressure in forward pricing.
What stands out here is not collapse but constraint—many indicators have moved only mildly, but all remain below the 50 threshold. There is no indication of robust expansion. At the same time, some leading figures (notably Orders and Production) have nudged higher, which often marks the start of bottoming behaviour rather than the start of a sharp upturn.
Taken together, while headline indicators show further contraction, some sub-indexes hint that the pace of slowdown is easing. The Forward Orders trend, combined with supplier delays and backlog growth, increases the chances of near-term shifts in production schedules. We expect uncertainty to remain, with higher-than-typical intraday positioning changes, especially in short-duration instruments.
For pricing models, attention should now shift more carefully to the sequence of small moves across adjacent indicators—particularly where they affect timing of input expenses and customer restocking activity. The import collapse is unlikely to reverse soon but may limit downside risk for regions reliant on domestic demand.
