Demand Strengthens as Key Manufacturing Sectors See Growth
In January, the U.S. manufacturing sector expanded for the first time after 26 consecutive months of contraction, with the ISM Manufacturing® PMI rising to 50.9% from 49.2% the prior month. Customer demand showed clear improvement, and inputs remained accommodative as output expanded. The New Orders Index moved further into expansion territory, strengthening to 55.1%. Production and employment returned to expansion, registering 52.5% and 50.3%, respectively. Meanwhile, inventories (45.9%) and backlog of orders (44.9%) contracted at a faster pace in January.
The New Orders Index increased for the third consecutive month and rose 3.0 percentage points from December. While the index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022, respondents noted an improvement in demand, with four of the six major sectors—petroleum and coal products, machinery, chemical products and transportation equipment—reporting an increase in new orders.
The Production Index rose 2.6 percentage points in January to expansion after contracting in December. The last time the index registered above 50% was in April 2024. Of the six largest manufacturing sectors, three—machinery, transportation equipment and chemical products—reported increased production.
The Employment Index increased 4.9 percentage points in January to expansion after contracting in 14 of the past 16 months. Of the six largest manufacturing sectors, two—chemical products and transportation equipment—reported increased employment. Although companies continued to reduce headcounts through layoffs, attrition and hiring freezes, respondents reported less workforce reduction activity occurring in 2025.
The Prices Index rose 2.4 percentage points to 54.9%, indicating raw materials prices increased for the fourth straight month in January. Steel, aluminum, copper, food elements and natural gas registered increases, offset partly by plastic resins and diesel fuel falling in price. Nearly 21% of companies reported paying higher prices, up from the 14% reported in December.