Economic activity in the manufacturing sector expanded in January 2026 for the first time in 12 months, preceded by 26 consecutive months of contraction, according to the nation’s supply executives in the latest ISM Manufacturing PMI Report.

The Manufacturing PMI registered 52.6 percent in January 2026, a 4.7 percentage point increase compared to the seasonally-adjusted reading of 47.9 percent in December 2025, according to a recent report issued by Susan Spence, MBA, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. The report indicates that the overall economy continued to expand for the 15th month, noting that a Manufacturing PMI above 47.5 percent over time generally indicates an expansion of the overall economy.

The New Orders Index expanded for the first time since August 2025, with a reading of 57.1 percent, up 9.7 percentage points from the December 2025 seasonally adjusted figure of 47.4 percent, and the highest reading since February 2022, when it reached 59.7 percent.

The Production Index of 55.9 percent was said to be 5.2 percentage points higher than the December seasonally adjusted figure of 50.7 percent, and it was the highest reading since 58.1 percent in February 2022.

The Prices Index remained in expansion, posting a 59 percent reading, 0.5 percentage points higher than December’s 58.5 percent reading.

The Backlog of Orders Index registered 51.6 percent, up 5.8 percentage points from the 45.8 percent recorded in December and the highest reading since August 2022, when it reached 53 percent.

The Employment Index registered 48.1 percent in January, 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 was up 3.6 percentage points from the 50.8 percent recorded in December 2025. Supplier Deliveries is the only ISM PMI Reports index that is inverted; a reading 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 from 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,” Spence noted.

“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,” she continued. “A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.”

Although she said 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 headcounts is the norm at their companies as opposed to hiring,” Spence added.

“Finally, inputs (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,” she noted.

Spence went on to say that when 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 – 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 below 45 percent is reportedly a good metric for gauging 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,” said Spence.

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 Are Survey Respondents Saying?

  • “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 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 a 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 in 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 products 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]

Image credit: Allison Hagan/Here & Now