ISM Manufacturing Expands In January For The First Time In 12 Months

By Mish Shedlock of MishTalk

Monday, February 2, 2026 1:51 PM EST

(Click on image to enlarge)

ISM chart and excerpts below by permission from the Institute for Supply Management® ISM®

Please consider the January 2026 ISM^® Manufacturing PMI^® report.

Economic activity in the manufacturing sector expanded in January for the first time in 12 months, preceded by 26 straight months of contraction, say the nation’s supply executives in the latest ISM® Manufacturing PMI® Report.

“The Manufacturing PMI^® registered 52.6 percent in January, a 4.7-percentage point increase compared to the seasonally adjusted reading of 47.9 percent in December. The New Orders Index expanded for the first time since August, with a reading of 57.1 percent, up 9.7 percentage points over December’s seasonally adjusted figure of 47.4 percent and its highest since February 2022 (59.7 percent). The January reading of the Production Index (55.9 percent) is 5.2 percentage points higher than December’s seasonally adjusted figure of 50.7 percent and the highest since it reached 58.1 percent in February 2022. The Prices Index remained in expansion (or ‘increasing’ territory), registering 59 percent, 0.5 percentage point higher than December’s reading of 58.5 percent. The Backlog of Orders Index registered 51.6 percent, up 5.8 percentage points compared to the 45.8 percent recorded in December and the highest reading since August 2022 (53 percent). The Employment Index registered 48.1 percent, up 3.3 percentage points from December’s seasonally adjusted figure of 44.8 percent.

“Three demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) are in expansion, and the Customers’ Inventories Index remains in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. Although these are positive signs for the start of the year, they are tempered by commentary citing that January is a reorder month after the holidays, and some buying appears to be to get ahead of expected price increases due to ongoing tariff issues.

Understanding the Headline Number

The overall index is the average of the next five items in the table.
New orders, production, and supplier deliveries are in expansion.
Employment and inventories are in contraction.
The average is 52.6

Second Positive Report in 50 Months

This was only the second positive report in 50 months.

There were 36 months of contraction, followed by 1 month of expansion, then 12 months of contraction, and now another month of expansion.

ISM is a diffusion index. That is direction matters more than quantity. For example a business hiring 2 employees will offset a business laying off 122 employees.

Given the last expansion was a year ago, I wonder is a bit of seasonality is in play. Regardless, take the gain, but look at the comments and prices.

What Respondents 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. 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.” [Transportation Equipment]
“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.” [Machinery]
“Continuing softness in the market, with December orders below average and buyers reluctant to spend despite beneficial tax policies in the U.S. Geopolitical tensions are fueling ‘anti-American’ buyer sentiment, and sales are being lost.” [Machinery]
“Another round of emotionally charged tariffs seems imminent, changing the landscape once more. Movement of custom product out of China continues, but the progress is slow with new qualifications required for transitioned materials and assemblies.” [Computer & Electronic Products]
“Business conditions remain uncertain. Customers are cautious. Broad-based inflation continues. The Supreme Court tariff decision looms.” [Computer & Electronic Products]
“Growing construction markets, data centers and energy projects, are straining the contract labor availability. The trade tariff uncertainty is creating volatility in the supply chain.” [Food, Beverage & Tobacco Products]
“A new year, with new challenges. We are moving manufacturing from China to Mexico — which will now impose tariffs on parts made in China. This push for more of a Mexican supply chain and creates some short-term supply management concerns.” [Chemical Products]
“Confused and uninformed tariff policies continue to plague small companies, making long-term planning pointless. Companies are not making capital commitments beyond 30 days.” [Fabricated Metal Products]
“Business conditions remain soft as we continue to miss sales, orders and profits as result of increased costs from tariffs, continued fallout from the government shutdown, and increased global uncertainty.” [Miscellaneous Manufacturing]
“Business trends moving into 2026 feature many of the headwinds from the third and fourth quarters of 2025. While the ‘plane’ has steadied, there continues to be uncertainty and added costs through our global operations. Tariff impacts on our financial performance last year cannot be overstated, as we had a much smaller EBITDA (earnings before interest, taxes, depreciation and amortization) than previous years. While other inflationary pressures continue to hit the business, tariffs and product costs played a large role. This year, we will continue our multi-country sourcing approach to manufacture and import product from more tariff-friendly countries outside of China. But as we know, nothing is guaranteed with the current administration. We have trimmed costs everywhere inside the business, including on labor and conferences, and reduced our revenue forecast to a much more achievable mark. We’re prepared to battle throughout the year for higher profitability.” [Apparel, Leather & Allied Products]

There is not a single positive comment in the bunch.

Prices

Prices	% Higher	% Same	% Lower	Net	Index
Jan 2026	29.0	59.9	11.1	+17.9	59.0
Dec 2025	26.4	64.1	9.5	+16.9	58.5
Nov 2025	27.2	62.6	10.2	+17.0	58.5
Oct 2025	27.3	61.4	11.3	+16.0	58.0

The ISM® Prices Index registered 59 percent in January, an increase of 0.5 percentage point over its December reading (58.5 percent) and indicating raw materials prices increased for the 16th straight month. Of the six largest manufacturing industries, four (Machinery; Computer & Electronic Products; Transportation Equipment; and Chemical Products) reported price increases in January.

“The Prices Index reading continues to be driven by increases in steel and aluminum prices that impact the entire value chain, as well as tariffs applied to many imported goods. Higher prices were reported by 29 percent of respondents in January, up 2.6 percentage points from 26.4 percent in December but lower compared to 49.2 percent in April 2025, which was the highest share since June 2022 (65.2 percent),” says Spence.

In January, the 11 industries that reported paying increased prices for raw materials, in order, are: Primary Metals; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Machinery; Computer & Electronic Products; Textile Mills; Wood Products; Transportation Equipment; and Chemical Products.

The three industries that reported paying decreased prices for raw materials in January are: Petroleum & Coal Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

What’s Driving Prices?

As expected and discussed many times on this blog, tariffs, especially steel and aluminum are driving prices higher.

This feeds producer prices which eventually shows up in the CPI and PCE.

“A Prices Index above 52.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials,” said the ISM

Rising prices and falling employment has a staflationary look.