US manufacturing output stagnated for the first time this year, and cost pressures are beginning to erode the recovery momentum.

The momentum of the recovery in the US manufacturing sector slowed significantly in May. Data released by the Federal Reserve on Monday showed that US manufacturing output in May remained flat compared to the previous month, ending a continuous four-month growth trend and falling below market expectations. Analysts believe that with the ongoing disruption of global supply chains due to the Iran war, rapid increase in raw material costs, and increased production pressure on businesses, signs of a slowdown in US manufacturing activity are beginning to emerge. The data shows that US factory output in May remained basically unchanged from the previous month, while the April data was revised from the previously reported 0.5% growth to 0.7% growth. Economists surveyed earlier generally expected a 0.3% growth in manufacturing output in May. At the same time, total industrial output in the US, including manufacturing, utilities, and mining, only increased by 0.1%. Market participants pointed out that this report contrasts with several recent manufacturing surveys. Previously published business survey data showed that due to increased demand for hoarding caused by the war, growth in defense orders, and the trend of AI data center construction, overall US manufacturing activity continued to expand. However, the latest official data shows that cost pressures are gradually eroding business production intentions. Another set of data released last week showed that the US Producer Price Index (PPI) in May recorded its fastest year-on-year growth rate since 2022, reflecting the continued rise in cost pressures facing businesses. It is worth noting that even after excluding the automotive and parts industry, US manufacturing output still failed to achieve growth, indicating a weakening overall momentum in the manufacturing sector. From an industry perspective, there is a clear differentiation within the US manufacturing sector. Durable goods manufacturing continued to grow, including industries such as computers and electronic products, electrical equipment, fabricated metal products, machinery, and primary metals. These industries have generally benefited from the trend of AI data center construction and increased capital spending brought about by the reshoring of manufacturing in the US. However, nondurable goods manufacturing saw a decline. Output in industries such as petroleum and coal products, plastics and rubber products, and textiles fell. Economist Stuart Paul said, "Data center construction and some reshoring initiatives continue to support growth in durable goods manufacturing, but that does not mean the US is experiencing a comprehensive manufacturing renaissance." He pointed out that, according to calculations, US factory output only grew in about one-third of industry categories. Meanwhile, supply chain issues continue to exist. Although investments in AI infrastructure continue to drive expansion in related industries, shortages of key raw materials such as storage chips and plastic resins continue to be tight, putting pressure on manufacturing companies. Another highlight comes from the defense and aerospace industry. Data shows that US defense and aerospace equipment output has grown for the sixth consecutive month and reached its highest level since December 2019. Analysts believe that the replenishment of ammunition stocks during the war, as well as potential growth in military exports from several recent trade agreements promoted by the US, are important factors supporting the continued expansion of the industry. The energy sector continues to remain strong. Data shows that mining, including oil and gas extraction, increased by 1.3%, becoming an important source of support for industrial production growth. In contrast, utility output declined. In addition, Federal Reserve data shows that US factory capacity utilization remains stable, with no significant improvement. The New York Fed's manufacturing survey released on the same day also sends a cautious signal. The data shows that manufacturing activity in New York State in June only slightly expanded, significantly slowing down from the strong growth in May. More importantly, an index reflecting future price expectations has risen to its highest level since 2022. The New York Fed stated that this indicates that more and more businesses expect to continue raising prices in the next six months. Analysts believe that this means that the US manufacturing sector is currently facing a situation of "slowing growth and rising costs." On the one hand, AI data center construction, reshoring of manufacturing, and defense orders continue to support some industries; on the other hand, supply chain disruptions and rising costs due to the war are weakening the growth momentum in a wider range of manufacturing sectors. The market generally expects that whether the US manufacturing sector can resume growth in the coming months will largely depend on whether supply chain pressures ease and whether inflation and energy prices can stabilize.