By Tom Ozimek
U.S. manufacturing gained fresh momentum in January as factory output increased and business conditions improved, according to survey data released on Feb. 2, offering the clearest signs yet of a turnaround after months of weakness.
The Institute for Supply Management’s (ISM’s) headline measure of U.S. manufacturing activity hit its highest level since August 2022, while S&P Global data showed output at American factories growing at its fastest pace since May 2022.
Together, the surveys point to a broad-based improvement in manufacturing activity at the start of 2026 after months of mixed readings marked by sluggish growth and bouts of contraction.
The S&P Global U.S. manufacturing purchasing managers’ index (PMI) rose to 52.4 in January from 51.8 in December, signaling a stronger pace of expansion, while the PMI reading from ISM jumped to 52.6 from 47.9, moving back into growth territory for the first time in a year. Readings above 50 represent expansion.
Data from S&P Global showed a sharp acceleration in production in January, while new orders returned to expansion after declining in December. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the largest rise in factory production since May 2022 is tainted by reports of ongoing subdued sales growth, suggesting buyers remain cautious.
“Business growth expectations for the year ahead are, however, holding up as firms anticipate improving demand, thanks in part to lower interest rates, reduced import competition due to tariffs, and more government support,” Williamson said in a statement. “However, political uncertainty remains a key drag on business sentiment.”
Output Increases, Demand Still Uneven
Despite the production increase, S&P Global’s survey showed that demand conditions remained mixed. While new orders edged back into growth territory in January, the pace of expansion was modest and below historical norms, underscoring lingering caution among customers.
Williamson said that the gap between production and sales could prove difficult to sustain if demand fails to strengthen further in the months ahead.
“Production growth consequently significantly outpaced that of new orders at the start of the year, resulting in a further accumulation of unsold warehouse inventory,” he said, adding that factories have recently been producing more goods than they are selling to a degree not seen since the global financial crisis.
Export orders remained a drag, falling for the seventh month in a row. Manufacturers cited tariffs and trade uncertainty as weighing on foreign demand, especially from South American and European customers. At the same time, input costs rose again, driven in part by higher raw material prices and tariff-related charges.
Factory gate prices also increased to the highest since last August, as manufacturers sought to pass higher costs on to customers, suggesting that goods inflation could remain elevated. This aligns with the latest government data on inflation, which showed the Personal Consumption Expenditures (PCE) price index rising to 2.8 percent in November 2025 from 2.7 percent in the prior month, while wholesale inflation rose in December at its quickest pace in three months.
ISM Shows Rebound but Flags Cost Pressures
The ISM survey echoed many of the same trends, pointing to a broad improvement in activity even as some manufacturers reported strains from rising costs and supply chain frictions.
“The trade tariff uncertainty is creating volatility in the supply chain,” an executive from the food, beverage, and tobacco industry was cited as saying in the ISM report.
The group’s forward-looking new orders index rebounded sharply in January to its highest level since early 2022, while supplier delivery times lengthened—typically a sign of strengthening demand. Other demand indicators—backlog of orders and new export orders—also improved, while the customers’ inventories index flashed 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,” the ISM report states, suggesting that the true demand picture could be more nuanced than the headline data suggest.
The ISM survey’s prices-paid index rose further, suggesting inflationary pressures remain persistent in the manufacturing sector, in part due to tariffs. Manufacturing employment continued to contract, though at a slower pace than in December, possibly reflecting ongoing caution among firms amid uncertainty over near-term demand.
“Across the board, buyers continue to stand on the sidelines,” a transportation equipment executive said in the report. “As we enter 2026, every conversation revolves around hope that the second half of 2026 starts the turnaround.”
Manufacturing accounts for roughly a 10th of U.S. economic output, and while the sector has lagged the broader economy in recent years, the latest data suggest conditions may be stabilizing after a prolonged period of weakness.
The Trump administration has pointed to an expanding pipeline of overseas orders as evidence that its trade policies are beginning to bolster exports.
Commerce Secretary Howard Lutnick recently touted data from the International Trade Administration (ITA) showing that American companies signed foreign government procurement contracts worth more than $240 billion in 2025, nearly triple the total recorded a year earlier.
“President Trump’s America First trade agenda is focused on driving down imports and surging exports. In just one year, we’ve delivered on both,” Lutnick said in a post on X. “Foreign contracts supported by the U.S. Department of Commerce alone surged to $244 billion last year. We’re just getting started.”
The ITA said on Jan. 23 that the 121 contracts, aided by foreign-spending commitments in recent trade deals negotiated by the Trump administration, contain about $206 billion in U.S. export content and are expected to support roughly 844,000 American jobs.
By comparison, the agency recorded $87 billion in contracts signed in 2024, the final year of the Biden administration, up sharply from a COVID-era low of $17 billion in 2021.
