New survey data show factory activity strengthening at the start of 2026, though uneven demand, rising costs, and tariff pressures continue to weigh on sentiment.
By yourNEWS Media Newsroom
U.S. manufacturing activity showed its strongest performance in nearly four years in January, as factory output rose sharply and business conditions improved, according to new survey data released Feb. 2 that point to an early-2026 rebound after a prolonged period of weakness.
Two closely watched manufacturing surveys indicated broad-based improvement. The Institute for Supply Management’s headline index of U.S. manufacturing activity reached its highest level since August 2022, while data from S&P Global showed factory output expanding at its fastest pace since May 2022.
Together, the reports suggest manufacturing conditions strengthened at the start of the year following months of sluggish growth and intermittent contraction.
The S&P Global U.S. manufacturing purchasing managers’ index rose to 52.4 in January from 51.8 in December, signaling a faster pace of expansion. At the same time, the ISM manufacturing index climbed to 52.6 from 47.9, returning to expansion territory for the first time in a year. Readings above 50 indicate growth.
S&P Global data showed a sharp acceleration in production, while new orders returned to expansion after contracting in December. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the strongest rise in factory output since mid-2022 was tempered by continued reports of subdued sales growth.
“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. He added that political uncertainty remains a significant drag on business confidence.
Despite the increase in production, demand conditions remained uneven. S&P Global’s survey showed new orders edging back into growth territory, but the pace was modest and below historical norms, reflecting lingering customer caution.
Williamson warned that the widening gap between production and sales could prove difficult to sustain if demand fails to strengthen in coming months.
“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 are producing more than they are selling to a degree not seen since the global financial crisis.
Export demand continued to weaken, with export orders falling for a seventh consecutive month. Manufacturers cited tariffs and trade uncertainty as weighing on overseas demand, particularly from South America and Europe. Input costs rose again in January, driven by higher raw-material prices and tariff-related charges.
Factory gate prices increased to their highest level since last August as manufacturers sought to pass higher costs on to customers, suggesting goods inflation could remain elevated. The trend aligns with recent government inflation data showing the Personal Consumption Expenditures price index rising to 2.8 percent in November 2025 from 2.7 percent a month earlier, while wholesale inflation accelerated in December.
The ISM survey reflected similar dynamics, showing a rebound in activity alongside persistent cost pressures and supply-chain uncertainty.
“The trade tariff uncertainty is creating volatility in the supply chain,” an executive from the food, beverage, and tobacco industry said in comments included in the ISM report.
The ISM new orders index surged to its highest level since early 2022, while supplier delivery times lengthened, a signal typically associated with strengthening demand. Other indicators, including order backlogs and new export orders, also improved, while the customers’ inventories index pointed to potential future production gains.
“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 said.
The prices-paid index rose further, indicating continued inflationary pressure within manufacturing, in part tied to tariffs. Manufacturing employment remained in contraction territory, though at a slower pace than in December, reflecting continued caution among employers.
“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 10 percent of U.S. economic output and has lagged the broader economy in recent years. The latest data suggest conditions may be stabilizing after an extended downturn.
The Trump administration has pointed to rising overseas orders as evidence that its trade policies are beginning to support U.S. exports. Commerce Secretary Howard Lutnick said data from the International Trade Administration show American firms signed more than $240 billion in foreign government procurement contracts 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,” Lutnick said in a post on X. “In just one year, we’ve delivered on both.”
The ITA said Jan. 23 that 121 contracts supported by recent trade agreements include roughly $206 billion in U.S. export content and are expected to support about 844,000 American jobs. By comparison, the agency recorded $87 billion in contracts in 2024, the final year of the Biden administration, and $17 billion during the pandemic-affected year of 2021.