WASHINGTON, (Reuters) – U.S. manufacturing activity increased in May, as strong demand for goods continued to support the country. This could help ease fears about an impending recession but a gauge of factory employment fell for nearly a full year.

On Wednesday, the Institute for Supply Management (ISM), reported that their index of national manufacturing activity rose to 56.1 in May from 55.4 in April. If the reading is above 50, it means that manufacturing has experienced an expansion. This sector accounts for about 12% of America’s economy.

Reuters polled economists to forecast that the index will fall to 54.5. Following a report on Friday that indicated strong growth in consumer spending, the survey came after the fact.

As the Federal Reserve raises inflation-control interest rates aggressively, fears have gripped the nation. From March, the U.S. central banks has increased its policy rate by 75 base points. Expect the Fed to raise its overnight rate by half an percentage point each month or in July at its next meeting.

While the market for goods continues to be strong, consumers are shifting towards services such travel and eating out. As the COVID-19 pandemic limited movement, goods spending soared.

From 53.5 in April, the forward-looking sub-index of ISM surveys’s new orders sub-index grew to 55.1. The snarled supply chain has made it difficult for manufacturing to function, and this is further constrained by Russia’s unprovoked aggression against Ukraine, as well new China shutdowns that are part of Beijing’s zero COVID-19 strategy.

Last month’s ISM measure of supplier deliveries fell to 65.7 from 67.2 in March. An increase of 50% in the ISM’s measure of supplier deliveries indicates that there have been slower factory deliveries. From 56.0 in April, the survey measured order backlogs at 58.7.

The inflation news was positive. The measure of manufacturers’ prices dropped from 84.6 to 82.2 in April. This supports the view that inflation may have peaked.

However, manufacturers have difficulty finding workers. The survey’s gauge of factory employment fell to 49.6 in April from 50.9 in March. The first drop below 50 percent since August may also indicate tighter financial circumstances. However, the reason for the decline in factory employment is worker shortages. There were 11.5million unfilled jobs throughout the economy as of March 31, a record.