U.S. manufacturing posted its strongest month in four years in May 2026, with both major purchasing manager indexes reaching levels not seen since mid-2022. The sector is now firmly in expansion territory, driven by accelerating production and surging new orders across a broad base of industries. All six of the largest manufacturing sectors grew during the month, and only one of 18 tracked industries reported contraction.
But the headline numbers tell only part of the story. The war in the Middle East and the closure of the Strait of Hormuz are exerting enormous pressure on input costs, supply chains, and business sentiment. Rising fuel and petroleum prices are rippling through every corner of the manufacturing economy, and nearly 70 percent of ISM survey panelists’ comments expressed negative sentiment about conditions. The fundamental question facing the sector is whether this expansion reflects genuine demand or whether it is being artificially inflated by stockpiling as companies race to get ahead of further disruptions.
On the investment front, May brought some of the most consequential factory announcements of the year, led by breakthroughs in life sciences, quantum computing, and defense production.
A Month in Data
The ISM Manufacturing PMI registered 54.0 percent in May, up 1.3 points from April’s 52.7 percent. This marks a fifth consecutive month of expansion and the highest reading since May 2022. New Orders rose to 56.8 percent, up 2.7 points, delivering the strongest demand signal in the report. Production climbed to 54.3 percent for a seventh consecutive month of growth. New Export Orders returned to expansion at 50.6 percent after two months of contraction. Sixteen of 18 industries reported growth, with only Wood Products contracting.
The Prices Index remains a dominant concern. At 82.1 percent, it is still the second-highest reading since April 2022. ISM noted that steel, aluminum, tariffs, and petroleum price escalation from the Middle East conflict are the primary drivers. No commodities were reported down in price. Supplier Deliveries held at 60.6 percent, its highest level since May 2022, and no industry reported faster deliveries. Employment improved by 2.2 points to 48.6 percent but has now contracted for 32 consecutive months.
The S&P Global US Manufacturing PMI recorded 55.1 in May, up from 54.5 in April, also a four-year high. Production growth reached its strongest level since April 2022. However, Chief Business Economist Chris Williamson cautioned that growth in both output and orders was partly driven by stockpiling as companies built inventory ahead of further price increases and supply disruptions.
Input costs rose at the fastest rate since mid-2022, supplier delivery times deteriorated to the greatest extent since August 2022, and export orders fell for the eleventh consecutive month. Business confidence softened to a four-month low despite the strong headline numbers.
What the Data Means
May’s data presents a sector caught between two competing narratives. The headline numbers are unambiguously strong, with broad-based growth across nearly every industry. But the stockpiling dynamic identified by S&P Global suggests some portion of demand is being pulled forward rather than reflecting organic growth. Companies are buying defensively, and that pattern tends to create temporary boosts followed by slowdowns once inventories reach desired levels.
The pricing environment is unusually severe. The Iran conflict, mentioned in 42 percent of ISM panelist comments, is driving energy costs through every subsector. Tariffs compound the pressure. With no commodities declining in price and the Prices Index above 82, manufacturers face margin compression across the board. The durability of this expansion will hinge on whether the Middle East conflict stabilizes, energy prices moderate, and the demand being pulled forward is eventually replaced by organic growth.
New Factory and Manufacturing Announcements
May brought some of the year’s most significant new U.S. manufacturing investment announcements, with life sciences, quantum computing, and defense leading the way.
IBM
IBM and the U.S. Department of Commerce announced Anderon, the nation’s first purpose-built quantum chip foundry, to be headquartered in Albany, New York. The project is backed by a proposed $1 billion in CHIPS and Science Act incentives matched by $1 billion from IBM.
Eli Lily
Eli Lilly announced an additional $4.5 billion investment in Lebanon, Indiana, while opening its first dedicated genetic medicine manufacturing facility. The investment brings Lilly’s total Indiana expansion commitments since 2020 to more than $21 billion, with the Lebanon API site set to become the largest active pharmaceutical ingredient production facility in U.S. history when it opens in 2027.
Lockheed Martin
Lockheed Martin broke ground on a new Munitions Production Center in Troy, Alabama, part of its $9 billion commitment through 2030 to scale munitions production. The expansion nearly doubles the site’s manufacturing footprint for THAAD interceptor production.
TerraPower and Novartis
In cancer therapeutics, TerraPower Isotopes broke ground on a $450 million actinium-225 manufacturing facility in Philadelphia, expected to increase global production capacity twentyfold, while Novartis broke ground on a $280 million radioligand therapy site in Denton, Texas, and Niowave started construction on a $75 million actinium-225 facility in Lansing, Michigan.
Other notable announcements include USG Corporation’s $1.175 billion gypsum production facility in Orange, Texas; BAE Systems’ $135 million defense facility upgrades in Texas and New Hampshire; FUJIFILM Cellular Dynamics opening a new iPSC manufacturing headquarters in Madison, Wisconsin; Sortera Technologies bringing its AI-powered aluminum recycling facility in Lebanon, Tennessee to full capacity; and STULZ USA announcing a 300,000-square-foot cooling solutions facility in Denton, Texas to serve the data center market.
Future Outlook
May 2026 represents an inflection point for U.S. manufacturing. The sector is growing at its fastest rate in four years, and the breadth of expansion across industries is the strongest since 2022. The wave of factory investment announcements spanning quantum computing, genetic medicine, defense, and advanced materials reflects long-term strategic conviction in domestic manufacturing capacity.
The most concerning signals remain the cost environment and the employment picture. A Prices Index above 82 with no commodities declining creates real margin pressure, particularly for small and mid-size manufacturers. The 32-month employment contraction streak, while improving, suggests manufacturers remain cautious about permanent headcount increases.
If the Middle East conflict stabilizes and energy prices moderate, this expansion could sustain and accelerate. If disruptions deepen, the stockpiling-driven portion of demand will eventually unwind. Manufacturers would be wise to take advantage of the current momentum while stress-testing their operations for a range of scenarios in the second half of the year.
