U.S. Manufacturing Index Held Steady in May -- Update

U.S. factory activity held fairly steady and hiring picked up in May, a sign of continued growth for manufacturers amid economic gains at home and abroad.

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

Economists surveyed by The Wall Street Journal had expected a reading of 55.

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

"The core message here is that the industrial recovery continues at a very modest pace," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.

ISM's new orders index rose 2 points to 59.5, and employment added 1.5 points to 53.5.

Separate Labor Department data show manufacturing employment has increased for five consecutive months. Government jobs numbers for May are due out Friday.

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 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.

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.

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. The ISM index for exports last month fell 2 points to 57.5, still well within expansionary territory.

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

(END) Dow Jones Newswires

June 01, 2017 11:23 ET (15:23 GMT)