Two manufacturing surveys point to improving business conditions and stronger factory activity at the start of 2026.
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.
By Tom Ozimek
