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Manufacturing activity in the Fifth District contracted in May, but at a slower pace than the previous month, with the composite manufacturing index rising from -13 to -9. Nonetheless, the local business conditions index deteriorated further, falling from -21 in April to -25 in May. On the other hand, manufacturers are less pessimistic about the future, with the outlook for future local business conditions rising from -37 in April to -6. The Fifth Federal Reserve District consists of Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia.

Among its components, shipments and new orders improved but remained negative, rising from -17 to -10 and from -15 to -14, respectively. Employment edged up from -5 to -2, indicating hiring decreased at a slower rate in May. The vendor lead time index jumped from 1 to 15 in May, while the share of firms reporting backlogs rose from -24 to -19. The average growth rates of prices paid and received were little changed.

Looking ahead, firms still expect both price indexes to rise in the next 12 months but at a slower pace than forecasted in April. Expectations for future shipments rebounded from -20 to 2, turning positive, while new orders improved notably but remained negative at -3, suggesting that firms anticipate business to decline marginally in the next six months. Expectations for backlogs were largely the same, moving from -30 to -27. Meanwhile, firms continued a cautious approach to equipment and software spending, with expectations improving slightly to -13. Expectations for spending on capital expenditures remained the same at -15. In sum, businesses in the Fifth District are hesitant about the prospects for future growth and making new investments but are less sour on current conditions compared to April.