US manufacturing index rises in Jan as production momentum strengthens

However, the rise in output outpaced demand growth. New orders returned to expansion territory in January but increased only modestly and remained below the survey’s historical average. Export demand continued to be a weak spot, contracting for the seventh consecutive month as tariffs and ongoing trade uncertainty weighed on overseas sales, particularly to South American and European markets, S&P Global said in a press release.

Tariffs also remained a key factor influencing cost conditions. Input prices rose at a faster pace than in December as suppliers increased charges, while manufacturers’ own selling prices increased to the greatest extent since August 2025. The intensification of price pressures highlighted the ongoing inflationary impact of trade measures on the sector.

Part of the production growth was linked to inventory building. Manufacturers increased stocks of finished goods for a sixth straight month, although at the slowest pace in this sequence. Purchasing activity also rose moderately, reflecting higher production requirements and efforts to replenish input inventories, despite continued sourcing challenges and longer supplier delivery times.

Labour market conditions improved modestly. Work backlogs increased slightly, ending a four-month period of contraction, while employment rose for another month. Job creation, however, remained moderate and was the weakest seen in three months.

Business confidence held steady in January, remaining unchanged and only marginally below its long-term trend level. Some manufacturers expressed optimism that lower interest rates, reshoring of production, and reduced import competition could support growth over the next 12 months. Nevertheless, geopolitical concerns, elevated costs, and trade-related uncertainties continued to temper sentiment.

Overall, January’s PMI data pointed to a US manufacturing sector benefiting from stronger production momentum and cautious optimism, even as tariffs, export weakness, and cost pressures continued to constrain broader demand growth.

“News of the joint largest rise in factory production since May 2022 is tainted by reports of ongoing subdued sales growth. Production growth consequently significantly outpaced that of new orders at the start of the year, resulting in a further accumulation of unsold warehouse inventory. Over the past three months, the survey indicates that factories have typically produced more goods than they have sold to a degree we have not previously seen since the global financial crisis back in early 2009. This highly unusual situation is clearly unsustainable, hinting at risks of a production slowdown and a potential knock-on effect on employment, unless demand improves markedly in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“Sluggish sales and order book growth are being commonly linked to customer resistance to high prices, in turn often blamed on tariffs, as well as increased uncertainty over the economic outlook. While just below trend, business growth expectations for the year ahead are, however, holding up as firms anticipate improving demand, thanks in part to lower interest rates, reduced import competition due to tariffs, and more government support. However, political uncertainty remains a key drag on business sentiment,” added Williamson.

Fibre2Fashion News Desk (SG)