Morning Report: Manufacturing improves on inventory stockpiling

Posted on June 2, 2026 by Brent Nyitray
Table displaying vital financial statistics including S&P Futures, Oil prices, yields, mortgage rates, and SOFR Swap rates with their last values and changes.

Stocks are lower this morning on no real news. Bonds and MBS are up.

The manufacturing economy improved in May, with the ISM Manufacturing Index rising 1.3 points to 54. New orders expanded for the fifth straight month, while production increased as well. Prices remain elevated, however the are going in the right direction. Employment improved, although it is still in contraction mode.

“In May, U.S. manufacturing activity remained in expansion territory, growing at a faster pace compared to the month before. Of the five subindexes that make up the PMI®, the New Orders index indicated faster growth compared to the previous month, the Supplier Deliveries index stayed the same, the Production Index grew at a faster rate, and the Employment and Inventories indexes remained in contraction, though both improved.

“In May, 25 percent of the comments were positive and 69 percent negative, with a 1-to-2.7 ratio of positive to negative sentiment. Among comments, the Iran war was mentioned in 42 percent and tariffs in 18 percent; 57 percent of the panelists mentioned pricing volatility as an issue for their companies.”

Construction spending rose 0.4% MOM and 0.9% YOY according to the Census Bureau. Overall private residential construction rose 0.8% MOM and 1.7% YOY. Single-family increased 1.4% MOM but fell 1.9% YOY. On the other hand multifamily fell 0.3% MOM but rose 1.1% YOY.

S&P’s Manufacturing PMI confirmed what the ISM data said: that manufacturing is improving. Output growth rose to the fastest rate in 4 years. That said, we might be seeing the beginning of inflationary expectations feeding into the economy as manufacturers are stocking inventory.

“The headline PMI has hit a four-year high, with strong factory production growth for a second successive month in response to a further marked upturn in order books, but since the outbreak of war in the Middle East we have seen production and demand buoyed by stock building as companies worry over rising prices an
supply difficulties.

“This stockpiling was again widely evident in May and makes it hard to take an accurate reading on the underlying health of the manufacturing economy, as growth will cool once this stock build has run its course.

“The incidence of supply chain delays is the highest since August 2022, with the buying of safety stocks not only adding to the supply squeeze from the closure of the Strait of Hormuz but also pushing prices higher for a wide variety of inputs. The resulting steep jump in producer costs sends a worrying signal that broader economy inflation has further to rise in the coming months.”

When the Fed talks about “inflationary expectations remaining well-anchored” what they mean is that inflation expectations are not driving behavior. That seems to be changing at least according to this report. If companies begin to front-load purchases in order to beat expected price increases, this can exacerbate inflation. While it doesn’t seem to be happening yet on the employment side, the behavior of manufacturers implies that this is getting embedded into the economy. The big question is whether this is a temporary phenomenon related to the situation in the Persian Gulf or it is something more permanent.

I wouldn’t read too much into one single report, however it does confirm what the Fed is concerned about. The bigger concern would be a wage – price spiral where inflation rises and workers demand higher compensation, which increases costs and drives inflation even higher. This is the classic wage-price spiral and that was a common phenomenon in the 1960s and 1970s.

The low hire / low fire labor market doesn’t appear to be conducive for big wage increases, especially as AI threatens to eliminate many jobs. That said, this bears watching and has the potential to push the Fed towards a more hawkish stance. The December Fed Funds futures agree, with markets predicting a 50-50 chance of a rate hike this year.

Filed under: Economy |

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24 Responses

  1. jnc4p's avatar
    jnc4p, on June 3, 2026 at 12:58 pm said:

    When the Marxists start making sense we know we are in trouble.

    https://freddiedeboer.substack.com/p/you-can-and-should-blame-young-people

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  2. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on June 3, 2026 at 9:20 pm said:

    Jill, and the tweet’s author’s, high dudgeon over Melanie’s righteous outrage is hilarious!

    https://x.com/julie_kelly2/status/2062324199234945043?s=46

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  3. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on June 13, 2026 at 11:38 am said:

    I think this is correct.

    https://x.com/politicalmath/status/2065652353202622972?s=46

    We now have a permission structure and I do not think we will pull back from tit for tat assassinations for a good long while.

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    • Arcanaut's avatar
      Arcanaut, on June 15, 2026 at 5:15 pm said:

      I don’t know how long it will last. A: Avoiding assassination just requires more caution. It’s quite possible even a big stadium with solid security screening would have saved Kirk. B: Incentives do have an effect. All it takes is one Super Rich person to have a couple of assassins have their entire families murdered while they are awaiting trial for having shot some big name pundit or politician or business person. There are ways to revise the permission structure. But also it’s easy to fuck up assassinations or Trump would have been dead several times already.

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    • jnc4p's avatar
      jnc4p, on June 21, 2026 at 3:25 pm said:

      “The Popehat trajectory has been something to watch”

      Indeed.

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  4. Arcanaut's avatar
    Arcanaut, on June 15, 2026 at 5:35 pm said:

    Aight. Recent AI slop videos of recent AI sloppified music from High school, and one from the early-to-mid 90s. From the friend I did music with and another friend of his, neither of whom I can contact so I’m hoping they don’t mind what I’m doing.

    The roots of the first two are for music made up mostly spontaneously on the spot, with only one of us who could sing or play music at the time (and it wasn’t me) and us recording it with a cheap Casio and ghetto blaster. The magic of AI!

    First, “I Know What You Did For That Ring on Your Finger”, which was a song based on a girl we harassed by saying “we know what you did for that ring on your finger” as if it meant something, which it did not. I liked the song originally, like’d the AI sloppified version, and like the video I put together (the most work I have done on this song, as the original writing and performance was all Jon), where I turned it into a pitch for a new Lord of the Rings series on Amazon that updates the show for a modern audience.

    https://www.youtube.com/watch?v=JiGzHUdBk4I

    Then, “Everyone Cries”, which is very earnest and could be expanded into a Christian allegory fantasy movie of some kind. But I liked the music and always have so . . .

    I just find it interesting that this is a product from a song performed and written by a 16/17 year old kid, performed on a Casio and ghetto blaster with me acting as a hindrance for the most part at that time. Given the pedigree I think it turned out pretty well.

    https://www.youtube.com/watch?v=SKl1GTrgNSA

    And finally, I had done a video on FreeBeats, and didn’t care for FreeBeats, but they kept billing me for a month after I thought I had cancelled, and that gave me enough credits for this video, which I quite like and I had to do very little thinking about. I’ll keep FreeBeats in mind for the future but, eh. I can assemble enough connected clips off Grok in a week to do two videos, if I have an idea. No lipsync but I can live with that.

    I guess because it came from FreeBeatz. this one is a YouTube Shortz. I didn’t do that. YouTube did that.

    https://www.youtube.com/shorts/71Ne2YvbGmA

    Goodbye to Space on the Toilet of Your Face.

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  5. Arcanaut's avatar
    Arcanaut, on June 18, 2026 at 8:51 pm said:

    And one more video. Tools of Torture. An AI sloppified version of a song my friend did in the mid 1990s having to do with being forced into the Coast Guard, mostly by his sister.

    Features the decay of primarily 80s landmarks around town but also present day stuff that was around back then and had significance. Thematic with the tools of torture of adulthood and the larger world potential stripping away your sense of home.

    Anyhoo.

    https://youtu.be/qbOAG9pAA1U

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  6. jnc4p's avatar
    jnc4p, on June 21, 2026 at 3:30 pm said:

    This is a pretty good summary of the Obama years:

    If your governing philosophy is to elevate the social sector to write the next chapter in the story of America’s continuous expansion of freedom, and significant parts of the social sector decide that their real job is actually to protest America’s legacy of slavery and criticize you for not doing enough about structural racism, then your governing philosophy collapses. That is effectively what happened to Obama-ism.

    The alternative to Obama-ism did not turn out to be a glorious antiracist revolution followed by a socialist paradise. It turned out to be Donald Trump.

    https://www.persuasion.community/p/long-live-obama-ism

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  7. jnc4p's avatar
    jnc4p, on June 23, 2026 at 3:46 pm said:

    Interesting piece on Congress forfeiting it’s prerogatives:

    https://www.nytimes.com/2026/06/23/opinion/congress-house-partisanship-fear.html

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  8. jnc4p's avatar
    jnc4p, on June 24, 2026 at 4:11 pm said:

    It will be amusing if Popehat decides to reactivate his Twitter/X account now.

    https://substack.com/@benryan/note/c-282054190

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    • Brent Nyitray's avatar
      Brent Nyitray, on June 26, 2026 at 12:23 pm said:

      Interesting, for sure. I do think the jobs that are being created are mainly at the lower end of the wage scale. Lots of new jobs in healthcare for example. People in the trades are doing extremely well.

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  10. jnc4p's avatar
    jnc4p, on July 15, 2026 at 10:26 am said:

    This is absurd:

    NDAA’s sweeping buyback prohibition is no accident

    Corporate America is raising hell about a provision in the Senate’s annual defense policy bill that prohibits the Pentagon from contracting with entities that conduct stock buybacks or pay dividends.

    The NDAA’s bipartisan language is sweeping. Section 815 of the bill would appear to cover any DOD contractor. Some lobbyists have suggested that the breadth of that language must be a drafting mistake.

    https://punchbowl.news/article/defense/ndaa-buyback/

    https://www.cnbc.com/2026/07/14/stock-buyback-ban-senate-lobbying-ndaa.html

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    • Brent Nyitray's avatar
      Brent Nyitray, on July 16, 2026 at 11:17 am said:

      I don’t think Z-scores matter all that much when it comes to what a property will sell for. Appraisals matter much more.

      I am not surprised a $6.2 million property didn’t sell quickly. The action is at the lower price points these days, not at the top and a lot of luxury property sellers overestimate the value.

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  12. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on July 17, 2026 at 1:14 pm said:

    Scott and Brent,

    You both lived in the UK, what’s your take of this piece?

    https://amgreatness.com/2026/07/17/something-about-england/

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