The U.S. Institute of Supply Management manufacturing index rose to 55.7 in May from 53.9 in April. “The overall picture is one of a steadily improving manufacturing sector, although there are elements of unwelcome news within the components of the index,” says RBC Financial.

“The prices paid index has jumped nearly 20 points over the past three months, rising again in May to 63.0 from 60.3 in April,” says RBC. “While most of the increase is due to oil prices, which have recently fallen, inflation risk in the economy is somewhat higher than would be expected given the large amount of unused capacity.” U.S. employment continues to languish at 47.3 in May, up a bit from 46.7 in April, but below the 50 growth-contraction mark, and, “not a good sign for Friday’s jobs report.”

BMO Nesbitt Burns is more enthused about the report. “The forward-looking orders component surged to a 63.1 reading, and employment rose to a level of 47.3 – normally jobs start to rise before employment gets to 50. The markets didn’t like the 63 reading for prices paid. There is no sense arguing with those who regard rising materials prices at this stage of the cycle as inflationary. But, undeterred, we will say again that it’s perfectly normal for prices paid to bounce after recessions and it has never proved inflationary in prior early recoveries.”

“This report is good news,” says BMO Nesbitt. “An ISM over 50 means that things are getting better at a brisk pace. It emphatically does not mean the manufacturing sector has fully recovered from the steep downturn. It will take more than good ISM results for the Fed to begin to raise rates, but ISM is one piece of the puzzle. The Fed allowed ISM to fluctuate in this neighbourhood for years, however, in the early 1990s recovery before they began tightening.”