U.S. Manufacturing Activity Advances in May -- 2nd Update

By Jeffrey Sparshott Features Dow Jones Newswires

U.S. manufacturing activity expanded and hiring at factories picked up in May, signs of healthy growth for a key sector of the economy.

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The Institute for Supply Management on Thursday said its closely watched index of U.S. manufacturing activity inched ahead to 54.9 in May from 54.8 in April. A number above 50 indicates expansion.

ISM manufacturing readings for each month this year have now been higher than any month in 2015 or 2016.

"Manufacturing has had a run of strength for half a year now, and it should continue to fare well," Michael Montgomery, U.S. economist at IHS Markit, said in a note to clients.

Underlying figures were broadly positive, with new orders and employment both gaining.

The ISM employment index suggested more hiring for the sector in May. Separate Labor Department data show manufacturing employment has increased for five consecutive months. Government jobs numbers for May are due out Friday.

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Timothy Fiore, who oversees the ISM survey, said rising production and growing employment are making it difficult for manufacturers to find qualified employees. That could ripple through to wages and limit production capacity, though broader signs suggest continued growth in the coming months.

"We're in an adjustment phase from a dramatic ramp up at the end of last year and beginning of this year to something that is more stable," Mr. Fiore said.

U.S. factory activity was stagnant through long stretches of 2015 and 2016, while the energy sector slumped and a strong dollar made American goods more expensive overseas.

More recently, stabilizing commodity prices and improving global demand have supported manufacturing. Overseas demand has been particularly strong in recent months, though it cooled slightly in May, according to the ISM index.

One potential stumbling block is political uncertainty. Already, paper and furniture manufacturers have been roiled by the Trump administration plans to slap a 20% tariff on Canadian softwood lumber, Mr. Fiore said.

Elsewhere, potential political actions ranging from the withdrawal from the Paris climate treaty and related controls on emissions, a potential tax overhaul, additional tariffs and regulatory shifts are clouding the outlook for some firms.

"It's a very confusing period for people," Mr. Fiore said.

Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com

(END) Dow Jones Newswires

June 01, 2017 14:24 ET (18:24 GMT)