U.S. manufacturing activity expands for first time since 2022

U.S. factory activity expanded last month for the first time since 2022 as orders ramped up and production quickened, pointing to a brighter manufacturing outlook.

The Institute for Supply Management’s manufacturing gauge rose 1.7 points in January, to 50.9, the highest since September 2022, according to data released Monday. Readings above 50 indicate growth. The surveys were conducted before President Donald Trump announced 25% tariffs on imports from Canada and Mexico that risk disrupting supply chains for American producers.

A measure of new orders rose 3 points, to 55.1, the strongest growth since May 2022. The fifth straight monthly increase in the index, which illustrates a pickup in demand, led producers to ratchet up output.

The ISM production gauge moved solidly into expansion territory, climbing 2.6 points, to 52.5, in the best reading since March. That in turn encouraged manufacturers to bolster headcounts somewhat. The factory employment index expanded last month, though barely, for the first time since May.

Tariff threat

While the survey suggests optimism is gradually building among factory managers, the threats of tariffs, plodding overseas economies and a stronger U.S. dollar risk tempering enthusiasm about a more favorable regulatory environment and pro-business fiscal policy.

“I don’t think from a manufacturing expansion standpoint that tariffs are going to help us continue our progression,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said on a call with reporters.

Stocks declined and the dollar strengthened early Monday after Trump announced this weekend that he plans to raise import duties on goods from America’s top trading partners. He also said that tariffs on the European Union “will definitely happen.” Both Canada and Mexico have pledged to retaliate if Trump follows on an through on an executive order aimed at curbing illegal migration and the illicit drug trade.

The ISM survey showed producers are also contending with elevated costs amid a healthy demand environment. The gauge of prices paid rose by 2.4 points to 54.9, the highest since May.

Select ISM industry comments:

“Customer orders slightly stronger than expected. Seeing more general price increases for chemicals/raw materials.” – Chemical Products

“Alleviating supply chain conditions are noticeably pivoting back into acute shortage situations, with headwinds following. For aerospace and defense companies, critical minerals supply chains are tightening dramatically due to Chinese restrictions. Concerns are growing of an environment of more supply chain shortages.” – Transportation Equipment

“As the U.S. administration transfers, we will continue to monitor impact of tariffs on materials used for manufacturing. China stimulus is helping us win orders and increase use of services and consumables. Cost pressures remain for all materials and parts but are starting to stabilize.” – Computer & Electronic Products

“The organization is mindful of potential tariffs and what to do with re-routing or cost increases in supply chains that are impacted.” – Food & Tobacco

“Although we are in our busy season, our demand for the first two weeks of 2025 has outpaced normal levels for this period of time.” – Machinery

“Business is slowly improving.” – Electrical Equipment & Appliances

“Capital equipment sales are starting 2025 off strong.” – Fabricated Metal Products

“Automotive order demand continues to be consistent and on a steady pace. Beginning to look at hiring additional team members once again. Pricing is holding firm.” – Primary Metals

“Looking forward to a year of strong customer demand and higher sales than 2024.” – Textile Mills

Meanwhile, inventory levels at manufacturers shrank at a faster pace, indicating production growth may remain healthy in coming months.