US manufacturing recovery broadens, driving freight upcycle

US manufacturing activity expanded at its fastest pace in four years in May, with the Institute for Supply Management (ISM) Manufacturing PMI rising to 54.0. This marks the highest reading since May 2022 and follows a 10-month contraction period. The index has now held above the expansion threshold for five consecutive months, with the composite level consistent with roughly 2.2% annualised growth in real GDP.

The expansion is being driven by industrial production rather than consumer spending or inventory restocking. The New Orders index rose to 56.8, comfortably above the breakeven level for rising Census manufacturing orders, while Production reached 54.3. All six of the largest manufacturing industries expanded in May, led by computer and electronic products, machinery, and transportation equipment. Breadth reinforces the signal, with 16 of 18 industries reporting growth.

Demand is concentrated in end markets with multi-year investment horizons, including AI data centre construction, defence production, and reshored manufacturing capacity. Federal tax incentives for domestic capital investment are assisting at the margin, improving the after-tax economics of building and equipping US production capacity. This demand composition is less sensitive to the consumer cycle and more durable than the inventory- and stimulus-led surges of the post-pandemic period.

The Logistics Managers’ Index (LMI) reached 69.5, indicating a strong freight upcycle characterised by tight capacity, record-high transportation prices, and elevated tender rejections, particularly in the flatbed sector. Transportation Prices in the LMI reached 96.0, the highest reading for any component in the index’s near-decade history. Flatbed spot rates stand at $4.32 per mile, with tender rejections remaining above 38%.

Coke carloads, a leading indicator for domestic steel output, are up 28% year-on-year, according to the Association of American Railroads. Durable-goods orders rose 7.9%, concentrated in transportation equipment and machinery. The ISM Imports index returned to expansion at 53.0 as manufacturers pulled in components to support production, while the Customers’ Inventories index stood at 42.7, well into “too low” territory.

Tender rejections across the market printed at 16.99%, the highest of the current cycle. The pattern is most pronounced in the flatbed segment, which carries the machinery, metals, and equipment that define manufacturing freight. As long as producers continue to draw in inputs and ship finished goods, flatbed conditions will remain tight.

For shippers, the implication is a structural shift toward contract coverage as spot exposure becomes increasingly costly. For carriers, conditions represent the most favourable pricing environment since 2022, underpinned by genuine industrial volume rather than the stimulus-driven consumption that defined the post-pandemic boom.