Demystifying Data

The S&P Global Manufacturing PMI was 52.4 in January, up from the December reading of 51.8. New orders rose in January, though growth was modest and below the survey average. However, exports declined for the seventh consecutive month, as tariffs were noted to have driven up costs and hurt demand. Meanwhile, prices on inputs increased, with vendors raising charges in response, and selling price inflation rose to its highest level since August. In sum, the rate of inflation remained elevated from a historical context in January.

Production rose at the strongest rate since last August, and combined with weak sales, allowed stocks of finished goods to increase for the sixth consecutive month. In anticipation of future production, employment grew modestly in January. Backlogs of orders increased in January due to the rise in new orders, following four months of decline. Meanwhile, delivery times continued to lengthen, a result of difficulty sourcing inputs and resource constraints for suppliers.

Potential for growth from lowered interest rates and reduced import competition held business confidence steady in January. At the same time, output continuing to outpace sales presents the risk of a production slowdown and negative effects on employment unless demand improves.

In January, growth in global manufacturing activity strengthened from December, rising from 50.4 to 50.9, a three-month high. Output and new orders both expanded as manufacturers saw the strongest rise in new work in almost a year. New export orders contracted in January for the 10th consecutive month but at their slowest pace during this downturn. Meanwhile, lead times continued to slow, lengthening for the 20th consecutive month. Employment grew for the first time in three months as job gains in the U.S., China and Japan contrasted job losses across the Eurozone.

India, Greece, the Philippines and Thailand had the highest PMI readings in January. On the other hand, Brazil, Germany, Russia and Italy were some of the larger nations to register declines in activity. The upturn in manufacturing occurred across consumer, intermediate and investment goods in January, with the fastest growth seen in consumer goods.

Meanwhile, input and output price pressures rose at the quickest rates in three years in January, with the jump largely driven by the U.S. Despite this, forward-looking indicators remained positive, with business optimism hitting a 10-month high but remaining below long-run averages.

Job openings for manufacturing increased by 34,000 to 433,000 in December. On the other hand, the November job openings level of 399,000 was revised downward from 403,000 in the previous report. Nondurable goods job openings in December rose by 11,000 to 139,000, while durable goods job openings climbed by 23,000 to 294,000. The manufacturing job openings rate ticked up to 3.3% from 3.0% in November but stayed the same from 3.3% the previous year. The rate for nondurable goods manufacturing advanced 0.2 percentage points to 2.8% and 0.3 percentage points to 3.6% for durable goods manufacturing.

In the larger economy, the number of job openings dropped to 6.5 million, a decline of 386,000 from November and 966,000 from the previous year. The job openings rate fell to 3.9% from 4.2% in November and from 4.5% in December 2024. This data reflects an overall labor market that has eased back to pre-pandemic levels, but remains relatively tight from a historical perspective.

The number of hires in the overall economy increased 172,000 to 5.3 million in December but decreased 81,000 from the previous year. The hires rate for the overall economy edged up 0.1 percentage point in December to 3.3%. Meanwhile, the hires rate for manufacturing similarly ticked up 0.1 percentage point to 2.3%, down from 2.4% in December 2024. The hires rate for durable goods stayed the same at 2.0%, while the hires rate for nondurable goods inched up 0.1 percentage point to 2.7%.

In the larger economy, total separations, which include quits, layoffs, discharges and other separations, rose 107,000 from November to 5.3 million and 169,000 from the previous year. The total separations rate ticked up 0.1 percentage point to 3.3% for the overall economy but stayed the same for manufacturing at 2.4%, down from 2.5% from the year prior. Within that rate, layoffs and discharges increased by 7,000 in December for manufacturing, while quits ticked up by 2,000. The quit and layoff rates continue to remain lower for manufacturing than the total nonfarm sector.

In January, the U.S. manufacturing sector expanded for the first time after 10 consecutive months of contraction, with the ISM Manufacturing® PMI increasing to 52.6% from 47.9% in December. Demand indicators moved into expansion territory, with the New Orders, New Export Orders and Backlog of Orders Indexes rising to 57.1%, 50.2% and 51.6%, respectively. Meanwhile, the Customers’ Inventories Index contracted at a faster rate into “too low” territory, which is also a positive sign for future production. Meanwhile, the Production Index expanded at a faster pace in January, increasing from 50.7% to 55.9%.

The New Orders Index expanded in January after contracting for four consecutive months, jumping 9.7 percentage points from December. Of the six-largest manufacturing sectors, four—machinery; transportation equipment; chemical products; and food, beverage and tobacco products—reported an increase in new orders. In a turnaround from recent months, respondents noted optimism about near-term demand. However, numerous respondents cited post-holiday replenishment and customers’ desire to get ahead of additional tariff-driven price increases as likely reasons for the increase.

The New Export Orders Index expanded after 10 consecutive months of contraction in January, 3.4 percentage points higher than December. Nonetheless, respondents remain concerned about dampened international demand amid ongoing trade tensions and policy uncertainty. Meanwhile, the Imports Index stayed the same in January after nine consecutive months of contraction, up 5.4 percentage points from December to 50.0%.

The Employment Index contracted for the 12th consecutive month but at a slower pace than the prior month, up 3.3 percentage points from December to 48.1%. Of the six-largest manufacturing sectors, two—transportation equipment and computer and electronic products—reported increased employment. Companies continued to focus on layoffs and attrition to restrict headcounts due to uncertainty around near- to mid-term demand. For every comment on hiring, two respondents noted reduced headcounts.

The Prices Index ticked up 0.5 percentage points from December to 59.0%, indicating raw materials prices grew for the 16th straight month in January and at a slightly faster pace than the prior month. Of the six-largest manufacturing sectors, four—machinery; computer and electronic products; transportation equipment; and chemical products—reported increased prices. The increase continues to be driven by higher steel and aluminum prices impacting the entire supply chain, as well as the tariffs applied to most imported goods. Roughly 29.0% of companies reported paying higher prices, up from 26.4% in December and from 21.0% in January 2025.

Manufacturing activity stayed the same in the Tenth District in January, with the month-over-month composite index remaining unchanged at 0 from December. Meanwhile, expectations for future activity stayed positive but declined 3 points to 7. The month-over-month activity remaining constant was due to an increase in durable manufacturing offsetting a decline in nondurable manufacturing. At the same time, the new orders index inched up, while shipments turned negative in January. New orders for exports decreased at a slightly faster pace than the prior month. The Tenth Federal Reserve District encompasses the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.

The production index remained negative but inched up from -3 to -2, while the new orders index moved up from -2 to 0, indicating new orders were constant over the month after declining for two consecutive months. The employment index rose in January from -4 to 0, while the average employee workweek index ticked up from 3 to 4. The backlog of orders fell further into negative territory, dropping from -5 to -11. The pace of growth for prices received weakened, while growth for prices paid accelerated over the month, with raw materials prices increasing 3 points to 44, and prices received falling from 24 to 19. Over the year, the indexes for prices received and paid both decreased, moving down from 54 and 67, respectively.

In January, survey respondents were asked special questions about changes in labor demand and factors negatively affecting business. Over half of the firms (57%) reported little to no changes in labor demand over the past year, while 14% saw reduced labor demand and 17% experienced increased demand. When asked about business concerns, more than one-third (39%) noted concerns about domestic demand for goods and services, 24% were concerned about geopolitical uncertainty and 21% cited worries about worker availability.

The NFIB Small Business Optimism Index inched up 0.5 points to 99.5 in December, remaining slightly above the 52-year average of 98. December’s increase was due primarily to the rise in those expecting better business conditions. Of the 10 components included in the index, two increased, three decreased and five stayed the same. Meanwhile, the Uncertainty Index dropped 7 points to 84, the lowest reading since June 2024 but still well above the 51-year average (68) and slightly above the average since 2016 (80).

Taxes were cited as the top concern for small business owners, with 20% reporting them as the most important problem, up 6 points from November. The share of business owners reporting labor quality as the top problem fell 2 points from November to 19%, with 33% struggling to fill open jobs and 53% reporting hiring or trying to hire in December. Meanwhile, inflation fell to third in the list of concerns, with 12% reporting it as a top problem, down 3 points from November, with a net 30% raising prices.

A net 31% of small business owners reported raising compensation, up 5 points in December after remaining unchanged in November. Meanwhile, 24% of business owners plan to raise compensation in the next three months, unchanged from November. Pressure on profitability weakened in December, with positive profit trends rising 3 points from November to a net negative 20%. Among owners reporting lower profits, 41% blamed weaker sales, 13% cited increased material costs, 12% mentioned usual seasonal changes, 9% reported price changes from their products or services and 7% noted labor costs. Meanwhile, 5% reported their last loan was harder to get than previous attempts, up 1 point from November, and a net negative 3% of owners cited paying a higher interest rate on their most recent loan, down 5 points from the prior month.

The outlook for general business conditions rose 9 points to 24%, the first increase since July. Despite the improvement in December, expectations for better business conditions have fallen 23 points since the start of 2025. At the same time, 13% reported that it is a good time to expand their business, unchanged for the second consecutive month and a rather weak reading compared to times of economic expansion. Overall, despite consumer sentiment remaining low, small business owners anticipate economic conditions to remain broadly favorable in 2026, with cost pressures moderating and other challenges easing.

U.S. import prices rose 0.4% from September to November, while increasing 0.1% over the year in November. Meanwhile, U.S. export prices stepped up 0.5% from September to November, while growing 3.3% over the year in November. Since the Bureau of Labor Statistics was unable to collect survey data in October due to a lapse in appropriations, indexes for that month were missing.

In November, U.S. import prices for manufacturing rose 0.2% over the year, as a surge in metals manufacturing prices offset declines across other sectors of the industry. Primary metal manufacturing experienced the most significant over-the-year U.S. import price increase in November, jumping 17.4%. On the other hand, the greatest yearly decrease in U.S. import prices occurred in beverage and tobacco product manufacturing, which fell 14.7% from November 2024. At the same time, U.S. export prices for manufacturing grew 4.0% over the year, with primary metal manufacturing exhibiting the largest rise (32.0%). Meanwhile, U.S. import prices for nonmanufacturing decreased 3.8% from November 2024, while U.S. export prices for nonmanufacturing edged down 0.6% over the year.

Fuel import prices decreased 2.5% from September to November. Over the past year, fuel import prices have dropped 6.6%, the largest over-the-year decline since August. Import petroleum prices declined 8.4% year-over-year in November, while natural gas prices surged 51.4% over that period. Nonfuel import prices ticked up 0.6% from September to November and 0.7% on an over-the-year basis. Higher prices for nonfuel industrial supplies and materials and for capital goods more than offset lower prices for foods, feeds and beverages; automotive vehicles; and consumer goods.

Agriculture export prices rose 1.3% from September to November and 2.6% over the past 12 months, driven by higher prices for vegetables, nuts and fruit. Meanwhile, nonagricultural export prices grew 0.4% from September to November and 3.3% over the year. Higher prices for consumer goods, capital goods and nonagricultural industrial supplies and materials drove the 12-month increase.

Manufacturing activity in New York state increased in January, with the headline business conditions index climbing 11.4 points to 7.7. The new orders index turned positive, rising 7.6 points to 6.6, while the shipments index jumped 21.3 points to 16.3, its highest level in over a year. Unfilled orders improved from -14.9 to -8.2, while inventories slipped 6.1 points to -2.1, indicating business inventories have started to decline. Delivery times lengthened, and supply availability improved but remained negative, increasing 2.8 points to -4.1.

Employment fell in January, with the index for the number of employees plunging 16.5 points to -9.0. Meanwhile, the average employee workweek declined to -5.4 from 2.5, signaling a decrease in hours worked from December. The prices paid index stepped down 1.4 points to 42.8, while the prices received index dropped 11.0 points to 14.4, a reflection of a slower pace of increase in both prices received and prices paid.

In January, firms’ optimism regarding the future declined slightly but remained high. The future business activity index edged down 3.2 points to 30.3. In the next six months, new orders are expected to rise but at a slightly slower pace compared to the prior month at 33.3. The future employment index rose 7.1 points to 14.9, suggesting an anticipated faster pace of employment growth over the next six months. Meanwhile, input and selling price expectations are forecasted to increase at a slower pace, falling from 55.4 to 52.6 and from 41.6 to 36.5, respectively. Furthermore, capital spending plans strengthened from December, up from 6.9 to 10.3.

In January, Philadelphia’s regional manufacturing activity rose to its highest level since September, with the index for general business activity jumping from -8.8 to 12.6. This month, 23.1% of firms reported increases in activity, while just 10.5% of firms noted decreases. The indexes for new orders and shipments both moved up, rising from 5.7 to 14.4 and from 3.2 to 9.5, respectively. Meanwhile, the employment index declined to 9.7 points as the average employee workweek shrunk 3.4 points to 9.1.

The prices paid index decreased from 49.3 to 46.9, its second consecutive monthly decline, while the prices received index rose from 26.0 to 27.8. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, indicators showing expectations for future growth declined for the second consecutive month but remained positive. After decreasing 8.0 points in December, expectations for future business activity fell 12.6 points to 25.5 in January. The drop came from a loss in the proportion of firms expecting an increase in activity (34.9%). At the same time, the number of firms anticipating a decrease in activity (9.3%) was down from 12.6% in December. The future new orders index slipped from 39.1 to 32.9, but the future shipments index edged up from 39.9 to 40.8. At the same time, the capital expenditures index grew from 29.1 to 30.3. The future prices paid and prices received indexes increased from 64.6 to 66.6 and from 57.2 to 61.8, respectively. Additionally, the index for future employment rose from 24.7 to 28.8.

In January, firms were asked to estimate changes in various costs over the past year and anticipate changes coming in 2026. Of those responses, firms said their costs for wages, health benefits and non-health benefits rose 5.3% during 2025. Looking forward, firms expect the average costs for these to climb 6.5% in 2026. Meanwhile, firms anticipate the increase in the cost of energy, other raw materials and intermediate goods to slow over the next 12 months. When asked about factors influencing their pricing decisions for their products, maintaining steady profit margins (77%), wages and labor costs (75%) and strength of demand as well as nonlabor costs (both 74%) were cited as most important to firms.

The Producer Price Index for final demand (also known as wholesale prices) rose 0.2% over the month in November, after prices inched up 0.1% in October. Over the year, producer prices moved up 3.0% in November, up from 2.8% in October. Meanwhile, prices for final demand excluding foods, energy and trade services increased 0.2% over the month in November after rising 0.7% in October. Prices for these goods advanced 3.5% from November 2024, the largest 12-month increase since March.

Within final demand, prices for services stayed the same in November after rising 0.3% in October. Meanwhile, prices for goods jumped 0.9%, the largest increase since February 2024. Within the final demand services index, prices for bundled wired telecommunications access services moved up 4.6%, while margins for health, beauty and optical goods retailing fell 4.3%. Within the final demand goods index, prices for final demand energy climbed 4.6%, accounting for over 80% of the November increase. The price for gasoline was the primary contributor of that increase, surging 10.5%, while prices for residual fuels declined 8.6%.

Processed goods for intermediate demand stepped up 0.6% in November, the largest increase since July. Nearly three-fourths of the November advance can be attributed to a 12.4% jump in the prices for diesel fuel. The indexes for gasoline, primary nonferrous metals, commercial electric power, utility natural gas and jet fuel also rose. On the other hand, the prices for sugar and confectionary products decreased 1.3%. Over the year, the index for processed goods for intermediate demand rose 3.6%.

Meanwhile, prices for unprocessed goods for intermediate demand advanced 0.4% in November, the first increase since July. The growth was led by a 1.4% rise in unprocessed energy materials, with the 10.8% gain in the index for natural gas being a major factor. At the same time, prices for unprocessed foodstuffs and feedstuffs declined 0.9%. Over the year, prices for unprocessed goods for intermediate demand inched up 0.1%.