USA WATCH
USA: Stronger Cycle, Labour Still Lagging
May is a better month than April, but not a decisive one. The American economy is accelerating, demand is returning on a firmer footing, and growth is broadening across more sectors. The problem remains the same: businesses are not yet translating the recovery into convincing hiring.
In Brief
| Indicator | Manufacturing | Services | Operational Reading |
|---|---|---|---|
| PMI | 54.0 | 54.5 | Cycle in expansion and improving relative to April. |
| New Orders | 56.8 | 57.3 | Demand accelerating; stronger confirmation of the headline figure. |
| Employment | 48.6 | 47.9 | Weak spot in the picture: industrial improvement, but still below the threshold. |
| Prices | 82.1 | 71.3 | Cost pressures still elevated; margins and monetary policy remain under stress. |
1. The Headline Figure Improves
The May snapshot is more robust. The manufacturing PMI rises to 54.0 from 52.7 in April, the fifth consecutive month of expansion and the highest reading since May 2022. In services, the PMI moves from 53.6 to 54.5, the twenty-third consecutive month above the expansion threshold.
Sectoral breadth confirms the improvement: in manufacturing, 16 out of 18 industries are expanding, while in services 17 out of 18 are. The reading is therefore not confined to a handful of segments.
2. New Orders Are the Strongest Part of the Report
The most constructive signal comes from demand. Manufacturing new orders rise to 56.8, while services new orders reach 57.3. This confirms that May is not merely a month of resilience, but one of re-acceleration.
The combination of PMI and new orders is the most important takeaway: when current activity and forward-looking demand move in tandem, the cycle becomes more credible. In May this is occurring across a wide range of areas, with clear leadership in segments such as Wholesale Trade, Information, Nonmetallic Mineral Products, Printing, Paper Products, Electrical Equipment and Primary Metals.
3. Labour Is Not Keeping Pace
In manufacturing, the Employment Index improves from 46.4 to 48.6, but remains below the 50 mark. The reading signals a less severe contraction, not a genuine restart of industrial hiring.
In services the picture is more concerning: the Employment Index slips from 48.0 to 47.9, the third consecutive month of contraction. This is the most sensitive point, as services represent the backbone of the US economy.
The message is clear: firms are receiving more orders and stepping up activity, but remain cautious on fixed costs. Until that caution eases, the recovery remains incomplete.
4. Prices and the Fed: the knot remains untied
Caution on the labour front is also explained by cost levels. In manufacturing, the Prices Index fell from 84.6 to 82.1, yet remains extremely elevated. In services it rose from 70.7 to 71.3, its highest reading since August 2022.
This creates a problem for the Federal Reserve. Weak employment, under normal circumstances, would open the door to a more accommodative monetary policy stance. But prices still this high make it difficult to interpret the softness in hiring as a sufficient signal to cut rates aggressively.
The picture is not recessionary. It is more nuanced: better growth, strong demand, a cool labour market, and costs that are still running hot.
5. Operational conclusions
May improves the cyclical picture, but does not close the book on it. Demand is following through; employment is not. This is why the next key test will be the Services Employment Index: a return above 50 would render the recovery more balanced, while a further contraction would confirm that the divergence between demand and employment is the defining theme of the American summer.
Data source: Institute for Supply Management, Manufacturing PMI® Report and Services PMI® Report, May 2026. Editorial analysis: The Financial Spectator / Business Cycle Pulse.
Content (text and/or images) created with the help of artificial intelligence, under the editorial responsibility of the editorial team.