Growth in US Manufacturing Despite Iran War and Tariffs

The US manufacturing sector expanded in May 2026 for the fifth consecutive month, say executives in the latest Institute for Supply Management (ISM) Manufacturing PMI Report.

The manufacturing PMI registered 54% in May, 1.3% higher than in April 2026 and its highest reading since May 2022 which was 55.9%. 

16 manufacturing industries reported growth in May, including computer and electronic products, chemical products as well as food, beverage and tobacco products. 

The ISM report, which is based on data compiled from purchasing and supply executives across the US, found both tariffs and the Iran conflict weighing on executives. 

Susan Spence, Chair of the ISM Manufacturing Business Survey Committee said: “Among comments, the Iran war was mentioned in 42% and tariffs in 18%; 57% of the panelists mentioned pricing volatility as an issue for their companies.”

PMI beats forecasts

The US manufacturing sector expanded in May for the fifth straight month following a 10-month period of contraction, registering 54%. 

Economists that were polled by Reuters had forecast the PMI rising to 53%.

14 industries reported growth in production during the month of May, including textile mills, primary metals, electronic products and chemicals.

Reuters theorised the growth in the US manufacturing activity was likely driven by businesses' front-loading orders amid rising prices and shortages because of the US war with Iran.

Increased prices for raw materials

The growth in manufacturing comes despite many industries reporting an increased cost in raw materials, including paper chemical products, computer and electronic products, primary metals, machinery as well as food, beverage and tobacco products. 

The report also noted that delivery performance of suppliers to manufacturing organisations was slower in May for the sixth consecutive month. 

A respondent from the food, beverage and tobacco products industry told the ISM: “Cost of diesel is having huge impacts on our profitability. Confusion abounds around tariff refunds. We purchase many imported goods but in most cases are not the importer of record, so it is currently unclear to what we may be entitled.”

The price of diesel, widely used in commercial and industrial sectors over petrol, has risen by approximately 47% since early March to around US$5.52 per gallon. 

The rapid rise has been driven by the closure of the Strait of Hormuz, a result of the US and Israel instigated war on Iran. The Iran war dominated comments from manufacturers with many noting the negative impact on their business’ supply chains. 

“The war in Iran has raised our costs and its duration remains uncertain,” General Motors’s CEO, Mary Barra told investors in the company’s Q1 2026 earnings call. 

Tariffs still affecting industry

Since he took office, US President Donald Trump has enacted a growing list of tariffs on various countries, including China and the UK, and has targeted specific commodities. 

JP Morgan Global Research says that tariffs have ignited an international response, increased market volatility and created material headwinds that the global financial institution believes will weigh on growth. 

18% of respondents in the ISM's survey commented negatively about tariffs affecting business. 

A respondent from the electrical equipment, appliances and components industry told the ISM: “Continued dynamic random-access memory volatility, increased gas prices and tariffs are causing long lead constraints and price hikes that customers are not willing to bear. Panic is starting within our industry.”