The US manufacturing sector recovered in January amid strong order growth

US factory activity grew for the first time in a year in January, with new orders rebounding sharply, but the manufacturing sector is still out of the woods as tariffs pushed up commodity prices and strained supply chains. The Institute for Supply Management said Monday that the manufacturing PMI recovered to 52.6 last month. It was the first time in 12 months that the PMI rose above 50 and the highest reading since August 2022, pointing to growth in manufacturing, which accounts for 10.1% of the economy. The PMI stood at 47.9 in December and has been in contraction territory for ten months in a row. Economists polled by Reuters had forecast the PMI would rise to 48.5.Last month’s improvement could be related to the enactment of tax legislation, which, among other things, made the depreciation of bonuses permanent.

Manufacturing has yet to experience the renaissance envisioned by President Donald Trump with his sweeping tariffs. Industrial employment fell by 68,000 jobs in 2025. Factory output shrank 0.7% annually in the fourth quarter, Federal Reserve data showed.

But there have been some pockets, especially in the tech industry, thanks to a boom in investment in artificial intelligence. The ISM survey’s forward-looking new orders sub-index rose to 57.1 last month, the highest level since February 2022, up from 47.4 in December. Order backlogs also increased and exports recovered somewhat. However, the strong increase in new orders put some pressure on supply chains and increased input costs. The survey’s supplier deliveries index rose to 54.4 from 50.8 in the previous month. A value above 50 indicates slower deliveries. That could have contributed to the rise in the PMI. An extension of supplier delivery times is normally associated with a strong economy and high demand, but can also be a sign of supply chain bottlenecks related to tariffs. The survey’s measure of prices paid rose to 59.0 from 58.5 in December, in line with forecasts. That could indicate that commodity prices still have more room to rise and could help keep inflation above the Federal Reserve’s 2% target for some time.

The US central bank left its key overnight interest rate in the 3.50%-3.75% range last week. Fed Chairman Jerome Powell attributed the inflation overshoot to rates, adding, “but there is an expectation that we will see a peak in rate inflation sometime in the middle quarters of the year.” Factory employment shrank further, although the rate of decline slowed. The ISM has noted that companies were laying off workers and not filling open positions “due to uncertain demand in the short to medium term.” The measure of manufacturing employment rose to 48.1 from 44.8 in December.