Manufacturing’s recovery broadens as industrial demand leads the freight upcycle

The freight downturn that defined 2023 and 2024 has decisively reversed, and the May data clarifies the mechanism behind it: industrial production, rather than consumer spending or inventory restocking, is now driving the cycle. FreightWaves identified the inflection months ago.

The latest readings from the Institute for Supply Management and the Logistics Managers’ Index, corroborated by real-time tender data, confirm it. The ISM signal: expansion with breadth The ISM Manufacturing PMI registered 54. 0 in May, up 1. 3 points from April and the highest reading since May 2022.

The index has now held above the expansion threshold for five consecutive months, following a 10-month contraction. On ISM’s own regression, a 54. 0 composite is consistent with roughly 2. 2% annualized growth in real GDP. The internals are stronger than the headline. The New Orders index rose to 56. 8, comfortably above the 51.

9 level ISM identifies as the breakeven for rising Census manufacturing orders in constant dollars. Production reached 54. 3, above the 52. 0 threshold associated with rising Federal Reserve industrial output.

As a forward-looking series, new orders typically lead realized freight volumes by several weeks, which makes the current reading the more economically meaningful of the two. Breadth reinforces the signal.

All six of the largest manufacturing industries expanded in May — led by computer and electronic products, machinery, and transportation equipment — and 16 of 18 industries reported growth, with only wood products in contraction. Diffusion of this width is characteristic of a self-sustaining expansion rather than a narrow, sector-specific rebound.

Output, labor, and prices The labor data points to a productivity-led expansion. The Employment index came in at 48. 6 — still below the 50. 3 breakeven for rising BLS manufacturing payrolls, but up 2. 2 points and trending toward it.

Manufacturers have expanded output for seven straight months while holding headcount roughly flat, indicating they are absorbing incremental demand through existing capacity. Payroll growth typically lags output in the early phase of an industrial recovery; the trajectory of the employment index suggests hiring is the next stage.

Price pressure remains elevated but is moderating at the margin. The Prices index held at 82. 1, down 2. 5 points from April but far above the 52. 8 level consistent with rising producer prices for intermediate materials. Steel has appeared on ISM’s “up in price” list for seven consecutive months.

Sustained input-cost expansion at this level reflects demand-pull conditions and meaningful pricing power at the producer level. Supplier Deliveries registered 60. 6, slowing for a sixth straight month.

Because that index is inverted, a reading above 50 indicates slower deliveries — a standard symptom of a supply chain operating near capacity as demand recovers. The composition of demand is structural The character of this expansion distinguishes it from prior cycles.

The orders driving manufacturing are concentrated in end markets with multi-year investment horizons rather than short-cycle consumer demand. AI data center construction is generating sustained demand for electrical equipment, computer and electronic products, and the steel and structural materials that move predominantly on flatbeds.

Defense production is supporting transportation equipment and aerospace output. Domestic energy production and a broader push for industrial competitiveness — the reshoring of critical manufacturing capacity — add a further, policy-supported layer of fixed investment.

Federal tax incentives for domestic capital investment are assisting at the margin, improving the after-tax economics of building and equipping U. S. production capacity.

Demand of this composition is less sensitive to the consumer cycle and more durable than the inventory- and stimulus-led surges of the post-pandemic period, which has direct implications for the persistence of the freight upcycle. The steel intensity of that buildout is already visible in the rail data.

Coke — a direct feedstock for blast-furnace steelmaking and one of the cleaner leading indicators of domestic steel output are up 28% YoY, according to the Association of American Railroads, and coke carloads have been signaling firm steel production for months.

The broader metallic ores and metals group, which also captures primary metal products and iron and steel scrap, was up roughly 16% year over year by late May. Rising rail movements of steel inputs are precisely what an industrial economy gearing up to build data centers, defense hardware, and energy infrastructure produces.

The LMI confirms the transmission into freight The Logistics Managers’ Index translates that industrial demand into the freight economy, and it corroborates the ISM read. The May LMI registered 69. 5, down a marginal 0. 4 points from April’s 69. 9 but still the second-fastest rate of expansion since March 2022. The transportat