US ISM Manufacturing PMI January Data Shows Strong Rebound, Ending Contraction Streak

By ariachiang

2026-02-04

The Institute for Supply Management (ISM) reported that the U.S. manufacturing Purchasing Managers’ Index (PMI) rose to 52.6 in January, up sharply by 4.7 percentage points from the seasonally adjusted 47.9 in the prior month, ending a 12-month contraction and returning to expansion territory (above 50). Notably, the new orders index reached its highest level since August 2022, signaling a clear rebound in manufacturing demand. Overall performance exceeded market expectations and helped improve investor sentiment. The economy has now expanded for 15 consecutive months, with the PMI reading corresponding to an annualized real GDP growth rate of approximately 1.7%, a relatively high level in recent periods.

Sub-index performance:

  • New Orders Index rose to 57.1, up 9.7 percentage points month over month, ending contraction and marking the highest level since February 2022, reflecting post-holiday restocking demand.
  • Production Index increased to 55.9, up 5.2 percentage points, remaining in expansion for the third consecutive month and reaching its highest level since February 2022, driven mainly by transportation equipment and machinery sectors.
  • Employment Index stood at 48.1, still in contraction but improving by 3.3 percentage points from the prior month, marking the 28th consecutive month of decline as firms continued to reduce headcount or freeze hiring.
  • Supplier Deliveries Index rose to 54.4, up 3.6 percentage points, indicating a second consecutive month of slower deliveries and reflecting rising demand pressures on supply chains.
  • Inventories Index edged up to 47.6, an increase of 1.9 percentage points but still in contraction; meanwhile, Customer Inventories fell to 38.7, the lowest level since June 2022, which is supportive of future production.
  • Prices Index increased slightly to 59.0, up 0.5 percentage points, extending gains for the 16th consecutive month, driven by higher steel and aluminum prices and tariff-related effects.

The rebound was mainly supported by post-holiday order replenishment and customers pulling forward purchases to avoid potential tariff hikes. However, trade frictions and policy uncertainty remain key risks, prompting companies to continue shifting supply chains toward lower-tariff regions such as Mexico.

Overall, the January ISM manufacturing PMI indicates a meaningful improvement in U.S. manufacturing conditions, with most sub-indices showing broad-based gains, reflecting recovering demand and production momentum. In the short term (1–2 months), expansion is expected to continue, supported by restocking and improving demand, although weak employment recovery and inventory adjustments may pose headwinds. Over the medium term (within six months), uncertainty surrounding tariff policies and persistent inflation could keep the PMI fluctuating around the 50 level. Investors should monitor recovery signals in cyclical sectors such as transportation and chemicals while avoiding excessive optimism toward the manufacturing outlook.

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