ISM report: Manufacturing unexpectedly expands in January

The Institute for Supply Management reported February 2 that its PMI surveying business health in the manufacturing sector improved enough that U.S. manufacturing expanded in January for the first time in a full year. The topline figure rose 4.7 points from December 2025’s reading of 47.9% to 52.6%. In a statement, Susan Spence, Chair of the ISM’s Manufacturing Business Survey Committee, noted that the ISM’s subindexes tracking new orders, production, employment, supplier deliveries and inventories all improved relative to last year, though the employment and inventories indexes continued to shrink overall.

The subindexes for new orders and production rose by 9.7 and 5.2 points, respectively, as both reversed contraction trends and entered growth territory at 57.1% and 55.9%, respectively. The employment index rose by 3.3 points to 48.1% as it shrank at a slower rate than previously, maintaining a 28-month contraction streak, and the inventories index likewise showed slower contraction as it rose 1.9 points to 47.6%. Supplier deliveries got slower as that index increased by 3.6 points to 54.4%.

Despite the positive economic figures, comments from surveyed manufacturing business leaders remained largely wary, suggesting uncertainty. The range of comments from executives at various manufacturing companies representing a range of business areas continued to anticipate new tariffs, continued difficulty with hiring and general uncertainty.

What people are saying

“ ‘Hope’ has been word of the year in the Transportation Equipment industry. Unfortunately, all the hope in the world has not materialized into order activity in 2025 or the first half of 2026,” said an anonymous Transportation Equipment executive surveyed by the ISM. “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.”

“Confused and uninformed tariff policies continue to plague small companies, making long-term planning pointless,” said an anonymous Fabricated Metal Products executive. “Companies are not making capital commitments beyond 30 days.”

“Continuing softness in the market, with December orders below average and buyers reluctant to spend despite beneficial tax policies in the U.S.,” said an anonymous Machinery executive. “Geopolitical tensions are fueling ‘anti-American’ buyer sentiment, and sales are being lost.”

“The ISM manufacturing index blew past expectations at the start of the year, registering the fastest pace of expansion in over three years. Strong new orders, a rising backlog of orders, and low customer inventories suggest there will be continued momentum in the sector,” said Matthew Martin, Senior Economist at Oxford Economics. “Yet the anecdotal comments from the January report remained downbeat, with policy uncertainty the largest drag on sentiment. This uncertainty is bleeding through to employment, which is lagging the demand indicators, with a continued use of layoffs in addition to attrition. We've been here before, with the post-election surge leading to a false dawn at the start of 2025. However, we expect that the fiscal boost from the OBBBA, interest rate relief, increased defense spending, and the continued boost from AI investment should support more sustained expansion in the sector in 2026.”