A report released by the Institute for Supply Management on Wednesday showed U.S. manufacturing activity unexpectedly expanded at a slightly faster rate in the month of May.
The ISM said its manufacturing PMI inched up to 56.1 in May from 55.4 in April, with a reading above 50 indicating growth in the sector. The uptick surprised economists, who had expected the index to dip to 54.5.
"The small rise in the ISM manufacturing index to 56.1 in May, from 55.4, was better than the fall we had expected and suggests that a continued easing of supply shortages is lending some support to activity," said Andrew Hunter, Senior US Economist at Capital Economics.
He added, "But we expect a slowdown in demand, the weakening global backdrop and the stronger dollar to take their toll over the coming months."
The unexpected increase by the headline index came as the new orders index rose to 55.1 in May from 53.5 in April, while the production index crept up to 54.2 from 53.6.
On the other hand, the employment index slipped to 49.6 in May from 50.9 in April, indicating a modest contraction in employment in the manufacturing sector.
The report showed the prices index also fell to 82.2 in May from 84.6 in April, suggesting price growth slowed for the second consecutive month.
"The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.
"Sentiment remained strongly optimistic regarding demand, with five positive growth comments for every cautious comment," he added, while noting, "Panelists continue to note supply chain and pricing issues as their biggest concerns."
On Friday, the ISM is scheduled to release a separate report on activity in the service sector in the month of May. The services PMI is currently expected to edge down to 56.4 in May from 57.1 in April.
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