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 — is 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 transportation components are the clearest signal. Transportation Prices reached 96.0 — the highest reading for any component in the index’s near-decade history. Transportation Capacity remained in contraction at 31.7, while Transportation Utilization held at 69.5. The persistent inversion between prices and capacity is the analytically important feature: rates are rising not on speculative positioning but on a genuine scarcity of available equipment relative to demand.
Cost pressure is broad-based across the logistics complex. Inventory Costs rose to 84.1, the highest since May 2022, and aggregate logistics costs reached 250.9, also a post-2022 high. Every price and cost component of the index advanced in May.
The strength is concentrated upstream
The most economically significant detail in the LMI is the segmentation of activity by supply-chain position. The expansion is concentrated upstream, at the producer and manufacturer level — the node at which freight demand originates and propagates downstream.
Upstream transportation utilization registered 73.9, against 60.9 downstream. Upstream transportation capacity contracted at 25.7, materially tighter than the 45.3 reading downstream, and upstream warehousing capacity has been in contraction for four consecutive months. The pattern indicates producers have absorbed available capacity through elevated throughput rather than idle accumulation — a demand-driven tightening rather than a supply constraint.
The hard data is consistent. Durable-goods orders rose 7.9%, concentrated in transportation equipment and machinery — the higher-value, freight-intensive categories. The ISM Imports index returned to expansion at 53.0 as manufacturers pulled in components to support production. And the ISM Customers’ Inventories index stood at 42.7, well into “too low” territory; historically, this is among the more reliable leading indicators of future output, since understocked downstream buyers must replenish.
Taken together — order backlogs expanding at 52.2, new orders at 56.8, customers’ inventories below desired levels, and seven consecutive months of production growth — the indicators point in a single direction. Activity is concentrated at the production stage of the cycle, which is where durable freight demand is generated.
Real-time data corroborates the surveys
The ISM and LMI are survey-based diffusion indices. High-frequency transactional data confirms their direction. Tender rejections printed 16.99% today, the highest of the current cycle — meaning carriers are declining nearly one in six contracted loads in favor of better-priced freight, a condition that occurs only when demand is firm and capacity is scarce.
The pattern is most pronounced in the segment most directly tied to industrial activity. Flatbed, which carries the machinery, metals, and equipment that define manufacturing freight, is the leading edge: spot rates stand at $4.32 per mile, and flatbed tender rejections remain above 38% — more than double the all-in market rate. As long as producers continue to draw in inputs and ship finished goods, flatbed conditions will remain tight.
Implications
The May data describes a domestic manufacturing sector expanding at its fastest pace in four years, with broad sectoral participation and a concentration of strength upstream. The freight market is pricing the recovery accordingly: the LMI is near a four-year high, transportation prices are at a record, and tender rejections have reached a cycle high.
For shippers, the implication is a structural shift toward contract coverage as spot exposure becomes increasingly costly. For carriers, conditions represent the most favorable pricing environment since 2022 — and, unlike that episode, one underpinned by genuine industrial volume rather than the stimulus-driven consumption that defined the post-pandemic boom.
Source: FreightWaves
Compiled from international media by the SCI.AI editorial team.
