Five Months of Manufacturing Expansion Are Exposing Who Did the Work and Who Did Not

The ISM Report Signals Growth. The Real Question Is Whether Manufacturers Can Execute.

By Mark Zeffiro, Managing Partner, Brooks International

The latest Institute for Supply Management (ISM) Manufacturing PMI report delivered encouraging news for U.S. manufacturers. The PMI rose to 54.0 in May – up 1.3 percentage points from April and its highest readi...

ng since May 2022 – signalling continued expansion across the sector. New orders expanded for the fifth consecutive month, reaching 56.8%, while production activity and backlog growth all point to strengthening demand and increased business activity.

For many manufacturing leaders, the report appears to confirm what they have been hoping to see: the industry is gaining momentum after several years of disruption, uncertainty, and uneven recovery.
But the most important takeaway from the latest ISM data is not that manufacturing is growing.
It is that many organizations may not be operationally prepared for growth.

Rising Demand Doesn’t Fix Broken Execution

Historically, periods of expansion expose weaknesses just as quickly as periods of contraction. When demand accelerates, inefficiencies that were manageable during slower periods suddenly become significant barriers to performance. Production bottlenecks become more visible. Supplier challenges become more disruptive. Labour shortages become more acute. Inventory decisions carry greater consequences.

The latest ISM report reflects several of these underlying pressures in stark terms. The Prices Index registered 82.1% in May – the second highest level since April 2022, and the 20th consecutive month of input cost expansion. Nearly every industry comment in the report referenced higher prices. Supplier Deliveries held at 60.6, a multi-year high indicating significant lead time extensions across the sector. These are not conditions that reward unprepared organizations.

Perhaps most telling is the employment picture. Despite five consecutive months of manufacturing expansion, the Employment Index came in at 48.6 in May – contracting for the 32nd consecutive month. Companies are being asked to absorb rising demand with the same – or in some cases fewer – resources. That dynamic doesn’t resolve itself through optimism.

This is where operational readiness becomes the defining factor.
Many organizations view growth as a market opportunity. The most successful manufacturers recognize that growth tests the strength of their processes, supply chains, workforce productivity, and decision-making systems.
When demand rises, leaders often focus on increasing capacity through hiring, capital expenditures, or technology investments. While those actions can be important, they frequently overlook the operational foundations required to support sustainable expansion. Without strong processes and accountability, growth can create inefficiencies that erode margins, weaken customer service, and strain organizations already operating under pressure.

One area receiving significant attention is artificial intelligence and automation. Industry surveys consistently show manufacturers increasing investments in digital technologies, advanced analytics, and AI-driven solutions. Yet technology alone does not create operational excellence. Companies that deploy new tools before addressing process discipline and management systems often struggle to realize the expected benefits. Technology can accelerate performance, but only when supported by solid operating foundations.

The ISM data also highlights another important reality: resilience remains as important as efficiency.
Recent geopolitical disruptions, supply-chain volatility, and rising material costs continue to create uncertainty across manufacturing networks. Companies that spent the past several years focusing solely on cost reduction may find themselves vulnerable when conditions change. At the same time, organizations that responded by simply increasing inventory or building excess capacity may discover that resilience without discipline becomes expensive very quickly.

The most effective manufacturers are balancing both objectives by improving operational visibility, strengthening supplier relationships, and creating decision-making processes that allow them to respond quickly when conditions change.

Productivity Will Separate the Winners

The labour market presents another critical test.
For several years, workforce shortages have dominated manufacturing conversations. The challenge has not eased. Recent industry research finds that 79% of manufacturing executives now cite skilled labour shortage as their single greatest challenge, with manufacturing departments most affected. Nearly 70% of companies are responding by investing in robots and equipment – a 9% increase from 2025 – while recruitment and retention efforts continue to fall short.

But the more important shift may be this: many organizations have reached a point where productivity improvement offers greater returns than workforce expansion. Growth in 2026 will not come from broad capacity additions. It will come from the ability to extract more value from existing assets, processes, and people. Companies that can improve throughput, reduce downtime, eliminate process waste, and strengthen frontline leadership often create capacity without adding significant headcount.

The convergence of 32 consecutive months of employment contraction with five straight months of demand expansion is not a paradox – it is a stress test. Organizations that have built strong operating systems will pass it. Those that have not will find growth exposes their weaknesses faster than it creates results.

The Call to Action Is Clear

The latest ISM report sends an unambiguous message: market conditions are improving, but stronger demand will reward operational readiness – not optimism.

For manufacturing leaders, the priority is no longer determining whether growth is coming. The priority is ensuring the organization can absorb that growth profitably and consistently – through stronger productivity, resilient supply chains, well-aligned technology investments, and management systems that translate strategy into front-line performance.

Manufacturers that move now to identify where execution is breaking down, where capacity is genuinely constrained, and where technology investments are not yet producing measurable results will be positioned to capture disproportionate gains as the market expands.

The opportunity is real. So is the risk. The companies that emerge as leaders in this cycle will be the ones that converted operational readiness into a competitive advantage before they needed it.

About the Author
Mark Zeffiro is a Managing Partner at Brooks International. He brings more than 30 years of global operations and finance experience, including roles as CEO, CFO, and board director across global manufacturing and industrial businesses.