U.S. Manufacturing Activity Sees First Expansion in a Year as New Orders Surge

2 February 2026

A worker pours hot metal at the Kirsh Foundry in Beaver Dam, Wisconsin, U.S., April 12, 2018. (PHOTO: REUTERS/Timothy Aeppel)

In January 2026, for the first time in more than 12 months, U.S. manufacturing activity moved back into expansion territory, offering a glimmer of optimism for an industry that has struggled with contraction, supply chain pressures and the impact of import tariffs over the past year. The Institute for Supply Management’s manufacturing Purchasing Managers Index rose to 52.6 last month from 47.9 in December, marking the highest reading since August 2022 and signalling that factory activity, a bellwether for the broader economy registered growth rather than decline. Analysts and business leaders alike are poring over the data to understand whether this rebound reflects a lasting recovery or is instead a temporary bump caused by cyclical forces and strategic buying patterns.

At the heart of the rebound was a substantial jump in new orders, which climbed sharply to the highest levels seen since early 2022, according to the ISM report. The forward-looking new orders sub-index soared to 57.1 from 47.4 in December, indicating a notable increase in demand for manufactured goods. This uptick in orders suggests that some businesses both domestic and international have begun replenishing inventories, a shift that often follows a period of drawdowns and could reflect expectations of rising prices or improved economic conditions. Backlogs of work also increased, and export orders showed signs of recovery, hinting at broader interest in U.S. factory output.

The strong showing in new orders helped lift the overall PMI, but the picture beneath the headline number was mixed, illustrating persistent challenges facing the sector. Manufacturers continue to grapple with elevated input costs and supply chain constraints that have tightened delivery timelines and increased price pressures. The ISM survey’s supplier deliveries index climbed as slower deliveries suggested both a strengthening in demand and lingering bottlenecks, while the prices paid component remained elevated, indicating that inflationary forces in the factory sector have not fully abated.

Despite the encouraging signal of expansion, employment within the manufacturing sector remained subdued. Factory employment continued to contract for the 28th consecutive month, albeit at a slower pace, as companies have been cautious in their hiring plans amid uncertain demand forecasts. Many firms indicated that while orders improved in January, they remain hesitant to bring on new staff until they can be confident the uptick will be sustained over multiple quarters. This hesitancy reflects a broader trend in the U.S. economy, where cautious business sentiment and uneven demand have tempered labour market enthusiasm outside of some pockets of growth.

Economic policymakers and analysts have taken note of the mixed signals contained in the manufacturing data. On one hand, the resurgence in new orders and overall expansion of activity offers hope that manufacturers could be moving past the extended period of contraction that dominated much of 2025. On the other hand, underlying issues such as tariff-driven cost pressures, lingering supply chain disruptions and weak employment support a more guarded outlook. Many economists caution that the rebound could be related partly to post-holiday restocking and businesses front-loading purchases ahead of expected price increases tied to ongoing tariff policies, rather than a fundamental, broad-based turnaround.

Import tariffs imposed over recent years, intended to protect domestic industries, have had contradictory effects raising the cost of raw materials for U.S. manufacturers while doing little to deliver a revival in output or jobs. Higher tariffs have pushed firms to pay more for inputs, and that cost often gets passed on to buyers or absorbed by slim profit margins, complicating the sector’s recovery path. In January’s data, the higher new orders coinciding with persistent price pressures pointed to this dynamic, underscoring the complex relationship between policy, inflation and manufacturing growth.

While the overall U.S. economy has shown resilience in other areas most notably in consumer spending and services manufacturing’s rebound remains a crucial barometer of economic health. Factory activity accounts for a meaningful percentage of the nation’s economic output and has ties to business investment, export performance and wage trends across numerous communities. A sustained improvement in manufacturing could reverberate positively through supply chains, stimulate capital spending, and support broader growth ambitions for the coming year.

For now, though, the industry’s outlook continues to balance hope with caution. January’s data breaks a long streak of contraction and could signal the beginning of a recovery phase, but the persistent headwinds of elevated costs, international trade uncertainties and labour market caution suggest that the path ahead will not be smooth. Economists and business leaders will be closely watching upcoming manufacturing reports for confirmation that January’s rebound is more than a temporary cyclical blip. If future months show continued expansion accompanied by stronger employment and easing cost pressures, confidence in a broader industrial turnaround will likely grow. But should the gains prove uneven or short-lived, the sector may once again confront the structural challenges that have defined its performance over recent years.