ISM® PMI® Reports Roundup: January Manufacturing
The ISM® Manufacturing PMI® Report for January was one of the more head-scratching editions in recent history, with the composite index’s surprising leap into expansion territory and respondent sentiment that went in the opposite direction of the data.
Amid the conflicting messages, the one from Susan Spence, MBA, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, was simple: “Take the win.”
A victory, yes, but a PMI® reading of 52.6 percent in January — the first in expansion in a year and the highest since August 2022 (53 percent) — is far too insufficient to suggest a turnaround for the U.S. manufacturing sector. More data points are needed, especially in an environment where trade policy continues to be muddy.
A promising signal for the economy, ISM's January manufacturing index turned positive for the first time in a year with new orders expanding for the first time since August. Employment improved, but was still in contraction.
— Jason Brooks (@brookskcbsradio) February 2, 2026
“My hope is that this isn’t just the result of empty shelves being refilled, but that it’s something more durable,” Spence told a conference call of reporters on Monday. “In my view, sustainability will depend heavily on how companies have structured their supply chains. Are there alternative sourcing options that reduce exposure to tariff uncertainty? Some of this may involve testing partnerships or waiting to see how the U.S. Supreme Court rules (on the Trump administration’s authority to enact tariffs), though that’s speculative.”
She added, “I hate to answer a question with a question, but that’s where we are.”
A judicious look at the data was warranted because many Manufacturing Business Survey panelists indicated that companies boosted buying to replenish stocks after the holidays and to potentially get ahead of new tariffs. A 9.7-percentage point gain in the New Orders Index (to 57.1 percent) is the biggest single-month increase for that gauge, not counting during the coronavirus pandemic, since 2001.
The Production (55.9 percent, up 5.2 percentage points), Backlog of Orders (51.6 percent, a gain of 5.8 points) and New Export Orders (50.2 percent, 3.4 points higher than the previous month) indexes also elevated in January. The Production Index directly factors into the PMI®; the other two do not.
The Customers’ Inventories Index, which measures product levels on shelves, registered 38.7 percent in January, the lowest reading since June 2022 (35.2 percent). A “too low” status for that index is considered a positive for demand, because at some point, customers must reorder. They are, Spence said, but not in bulk.
“Across industries, we see a consistent pattern: customers limiting commitments, placing one- or two-month orders instead of locking in a year’s worth of demand, and pushing back on price increases tied to tariffs,” she said. “Long lead times make this particularly challenging in industries like aerospace. Economic policy that feels more stable would go a long way toward encouraging investment and domestic work.”
Even if the Supreme Court rules against the administration on tariffs, many analysts expect a Plan B — meaning that duties in some form are here to stay until at least 2029. At some point, Spence noted, companies will have to decide whether to devote the time and investment to move sourcing and production, and those decisions will have big impacts on customers.
Respondent comments regarding near-term demand were largely positive, Spence said. But overall, there were 2.3 negative comments for every positive one. And some responses on trade reflected panelists’ frustration.
Respondent commentary was not as upbeat as we would have guessed given the strong ISM Manufacturing PMI for January. Concerns about weak sales and another round of tariffs. pic.twitter.com/yFoSVShGOi
— RenMac: Renaissance Macro Research (@RenMacLLC) February 2, 2026
Wrote a respondent in 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.”
Added a panelist in Transportation Equipment, “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.”
The hope dynamic is reflected in the Employment Index, which increased to 48.1 percent in January but remained in contraction. New order increases should beget a production boost which should lead to more hiring — but until that buying is sustained, it’s wishful thinking.
As Spence said, customers hold the key to companies’ buying behavior. The February numbers figure to be revealing; luckily, after the shortest month of the year, that new data will arrive a couple of days earlier than normal.
“We saw from the ISM® Supply Chain Planning Forecast (in December) that there was optimism for 2026,” Spence said. “That manifested a little in January. My conclusion is that companies must be in close contact with their customers and are seeing reasons for optimism.”
She concluded, “Still, the big question is whether this current uptick is driven mainly by restocking and tariff anticipation, or whether it will stick. I remain somewhat skeptical, given everything we’ve seen over the past year.”
The ISM® PMI® Reports roundup:
Barron’s: U.S. Manufacturing Activity Expanded in January. “The New Orders Index, which is a gauge of future demand, rose to 57.1 percent from 47.7 percent in December, another bit of good news. One cautious indicator was (the Employment Index) at 48.1 percent, indicating manufacturing companies are shedding employees. … Still, it was a solid report and one investors hope the sector can build on.”
Bloomberg: U.S. Manufacturing Activity Expands by the Most Since 2022. “The strength in demand reflected in part a decline in a measure of customer inventories, which contracted by the most since mid-2022. Lean customer stockpiles have the potential of providing more of a tailwind for factory orders and production in the coming months.”
Logistics Management: Manufacturing Returns to Growth for the First Time in Nearly a Year. “Looking ahead, Spence said that it would be ideal for January’s return to growth to remain in the coming months, which is expected to be contingent on the outcome of the Supreme Court’s ruling. Should it rule against the tariffs, she said the White House has other ways of implementing tariffs.”
January ISM Manufacturing index at the highest since 2022.
— Larry Tentarelli, Blue Chip Daily (@bluechipdaily) February 2, 2026
Not bearish for the economy. pic.twitter.com/vFNsm2vwIo
MarketWatch: U.S. Manufacturers had a Very Good January — It’s the Rest of the Year That’s the Problem. “A smattering of manufacturers are doing pretty well — those involved in artificial intelligence, for instance, and companies such as steelmakers that have been shielded from competition due to U.S. tariffs. Most companies are treading water, however, hoping for a rebound in 2026 instead of expecting one.”
Reuters: U.S. Manufacturing Rebounds in January Amid Strong Order Growth. “Manufacturing has yet to experience the renaissance President Donald Trump envisioned with his sweeping tariffs. Manufacturing employment dropped by 68,000 jobs in 2025. Factory production contracted at a 0.7-percent annualized rate in the fourth quarter, data from the Federal Reserve showed.”
The Wall Street Journal: U.S. Factory Activity Posts Fastest Gains Since 2022. “New orders drove the overall improvement in sentiment, though also as the survey’s Production Index rose to its highest level since February 2022. The (Backlog of Orders Index) also registered the highest reading since August 2022.”
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(Photo credit: Getty Images/Funtay)