ISM: January's PMI shows manufacturing activity growth

Readings greater than 50% generally point toward economic growth in the manufacturing sector. And readings below 50% suggest a decrease in economic activity. Note, however, that “supplier deliveries” is the only ISM PMI reports index that is inversed. For supplier deliveries, a reading above 50% indicates slower deliveries. According to the report, slower deliveries correspond to economic improvements as customer demand increases. 

ISM’s chair of the business survey committee, Susan Spence, prepared the latest report. She found mixed performances among the key indicators for January. 

Key indicator assessments 

New orders, production, employment, supplier deliveries, backlog of orders, new export orders, and inventory indicators all improved, moving into expansion. 

“In January, US manufacturing activity returned to expansion territory, with improvements in all five subindexes that make up the PMI, though the employment and inventory indexes still remain in contraction,” Spence said. 

The customer inventories index is considered “too low,” which means it is contracting at a faster rate. Generally, when this indicator shows contraction, it’s considered a positive sign because it indicates an increased need for future production. 

However, January demand can be atypical. Following a slower period during the holidays, the first month of the year tends to be high in reorders. The report also notes buyers may still be trying to “get ahead of expected price increases due to ongoing tariff issues.” 

The supplier deliveries index indicates slower deliveries, which is considered a positive indicator. Meanwhile, the inventories index remained in contraction. The prices index rose again in January.

Market commentary 

Manufacturing executives from leading manufacturers commented on their outlook for 2026.  

A transportation equipment professional stated having hope is not going to have a measurable impact on business.  

“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 professional said. 

Tariffs remain a prominent concern for manufacturers. 

“Although our volume is low at the moment, the impact on the latest tariff threats on the European Union will have a huge negative impact on our profit for current quoted orders. We will not be able to recover the increase tariffs in our current quotations,” stated a machinery professional.  

An executive from the fabricated metal products sector commented, “Confused and uninformed tariff policies continue to plague small companies, making long-term planning pointless. Companies are not making capital commitments beyond 30 days.” 

A second machinery manufacturer told ISM, “Continuing softness in the market, with December orders below average and buyers reluctant to spend despite beneficial tax policies in the US. Geopolitical tensions are fueling ‘anti-American’ buyer sentiment, and sales are being lost.” 

Signs of improvement 

Five of the six largest manufacturing industries reported expansion in January. Nine other manufacturing industries also reported growth, while eight reported contractions.  

Last month, 20% of the manufacturing economy sector’s gross domestic product reported contraction compared to 85% in December. Strong contraction decreased to 12% compared to 43% in December. Manufacturing percentages under 45% are considered weak. January percentages represent marked month-on-month improvements.