News & Insights

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.