TEMPE, Ariz. — Economic activity in the manufacturing sector expanded in January for the first time in 12 months, preceded by 26 straight months of contraction, say the nation's supply executives in the latest ISM Manufacturing PMI Report.
The report was issued Monday by Susan Spence, MBA, chair of the Institute for Supply Management Manufacturing Business Survey Committee.
"The Manufacturing PMI registered 52.6 percent in January, a 4.7-percentage point increase compared to the seasonally adjusted reading of 47.9 percent in December. The overall economy continued in expansion for the 15th month. (A Manufacturing PMI above 47.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index expanded for the first time since August, with a reading of 57.1 percent, up 9.7 percentage points over December's seasonally adjusted figure of 47.4 percent and its highest since February 2022 (59.7 percent). The January reading of the Production Index (55.9 percent) is 5.2 percentage points higher than December's seasonally adjusted figure of 50.7 percent and the highest since it reached 58.1 percent in February 2022. The Prices Index remained in expansion (or 'increasing' territory), registering 59 percent, 0.5 percentage point higher than December's reading of 58.5 percent. The Backlog of Orders Index registered 51.6 percent, up 5.8 percentage points compared to the 45.8 percent recorded in December and the highest reading since August 2022 (53 percent). The Employment Index registered 48.1 percent, up 3.3 percentage points from December's seasonally adjusted figure of 44.8 percent.
"The Supplier Deliveries Index indicated a further slowdown in performance for the second month in a row after one month in 'faster' territory. The reading of 54.4 percent is up 3.6 percentage points from the 50.8 percent recorded in December. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
"The Inventories Index registered 47.6 percent, up 1.9 percentage points compared to December's seasonally adjusted reading of 45.7 percent. The Customers' Inventories Index reading of 38.7 percent is a 4.6-percentage point decrease compared to December and the lowest since it registered 35.2 percent in June 2022.
"The New Export Orders Index reading of 50.2 percent is 3.4 percentage points higher than the reading of 46.8 percent registered in December. The Imports Index registered 50.0 percent, 5.4 percentage points higher than December's reading of 44.6 percent.
"In January, U.S. manufacturing activity returned to expansion territory, with improvements in all five subindexes that make up the PMI (New Orders, Production, Employment, Supplier Deliveries, and Inventories), though the Employment and Inventories indexes still remain in contraction.
"Three demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) are in expansion, and the Customers' Inventories Index remains in 'too low' territory, contracting at a faster rate. A 'too low' status for the Customers' Inventories Index is usually considered positive for future production. Although these are positive signs for the start of the year, they are tempered by commentary citing that January is a reorder month after the holidays, and some buying appears to be to get ahead of expected price increases due to ongoing tariff issues.
"Regarding output, the Production Index is in expansion for the third month in a row, and the Employment Index, though still in contraction, saw a 3.3-percentage point improvement. However, 66 percent of panelists still indicate that managing head counts is the norm at their companies as opposed to hiring.
"Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index indicating slower deliveries, the Inventories Index remaining in contraction and the Prices Index continuing to rise.
"Looking at the manufacturing economy, 20 percent of the sector's gross domestic product (GDP) contracted in January, compared to 85 percent in December, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45 percent or lower) decreased to 12 percent, compared to 43 percent in December. The share of sector GDP with a PMI at or below 45 percent is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, five (Transportation Equipment; Machinery; Chemical Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products) expanded in January."
The nine manufacturing industries reporting growth in January — listed in order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; Machinery; Chemical Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The eight industries reporting contraction in January — in the following order — are: Textile Mills; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Plastics & Rubber Products; Furniture & Related Products; and Miscellaneous Manufacturing.
WHAT RESPONDENTS ARE SAYING
- "'Hope' has been word of the year in the Transportation Equipment industry. Unfortunately, all the hope in the world has not materialized into order activity in 2025 or the first half of 2026. Across the board, buyers continue to stand on the sidelines. As we enter 2026, every conversation revolves around hope that the second half of 2026 starts the turnaround. It's hard to set strategy on hope, but thanks to the uncertainty brought about by this administration, here we are." [Transportation Equipment]
- "Although our volume is low at the moment, the impact on the latest tariff threats on the European Union will have a huge negative impact on our profit for current quoted orders. We will not be able to recover the increase tariffs in our current quotations." [Machinery]
- "Continuing softness in the market, with December orders below average and buyers reluctant to spend despite beneficial tax policies in the U.S. Geopolitical tensions are fueling 'anti-American' buyer sentiment, and sales are being lost." [Machinery]
- "Another round of emotionally charged tariffs seems imminent, changing the landscape once more. Movement of custom product out of China continues, but the progress is slow with new qualifications required for transitioned materials and assemblies." [Computer & Electronic Products]
- "Business conditions remain uncertain. Customers are cautious. Broad-based inflation continues. The Supreme Court tariff decision looms." [Computer & Electronic Products]
- "Growing construction markets, data centers and energy projects, are straining the contract labor availability. The trade tariff uncertainty is creating volatility in the supply chain." [Food, Beverage & Tobacco Products]
- "A new year, with new challenges. We are moving manufacturing from China to Mexico — which will now impose tariffs on parts made in China. This push for more of a Mexican supply chain and creates some short-term supply management concerns." [Chemical Products]
- "Confused and uninformed tariff policies continue to plague small companies, making long-term planning pointless. Companies are not making capital commitments beyond 30 days." [Fabricated Metal Products]
- "Business conditions remain soft as we continue to miss sales, orders and profits as result of increased costs from tariffs, continued fallout from the government shutdown, and increased global uncertainty." [Miscellaneous Manufacturing]
- "Business trends moving into 2026 feature many of the headwinds from the third and fourth quarters of 2025. While the 'plane' has steadied, there continues to be uncertainty and added costs through our global operations. Tariff impacts on our financial performance last year cannot be overstated, as we had a much smaller EBITDA (earnings before interest, taxes, depreciation and amortization) than previous years. While other inflationary pressures continue to hit the business, tariffs and product costs played a large role. This year, we will continue our multi-country sourcing approach to manufacture and import product from more tariff-friendly countries outside of China. But as we know, nothing is guaranteed with the current administration. We have trimmed costs everywhere inside the business, including on labor and conferences, and reduced our revenue forecast to a much more achievable mark. We're prepared to battle throughout the year for higher profitability." [Apparel, Leather & Allied Products]
