US Manufacturing Grows for First Time in 6 Months Amid Optimism Surge

Boeing employees build 777 aircrafts during production at the Everett Production Facility in Everett, Wash., on June 26, 2024. Jennifer Buchanan/Pool/AFP via Getty Images

The U.S. manufacturing sector experienced growth in January for the first time in six months, signaling renewed momentum for the nation’s industrial base as factory output and hiring rose, buoyed by the largest monthly jump in optimism in more than four years.

According to the S&P Global Flash U.S. Purchasing Managers’ Index (PMI) report, released on Jan. 24, the manufacturing PMI rose to 50.1, crossing the critical 50-point threshold that separates expansion from contraction.

The improvement in America’s factories was supported by a rebound in new orders and increased production, marking a turning point after months of subdued activity.  New orders in the goods-producing sector rose for the first time in seven months, while output reversed the declines recorded over the past five months.

“Firms’ expectations of output in the coming year ... continued to run at a level not surpassed since May 2022, buoyed by optimism about the new government’s policies, encouraging firms to take on staff at the steepest rate for two-and-a-half years,” the report states.

Uncertainty in the run-up to the presidential election has given way to optimism about the future. Manufacturing confidence in January posted the biggest monthly improvement since November 2020, sending S&P Global’s factory sentiment index to a 22-month high.

“Looser regulation, lower taxes, and heightened protectionism were all widely cited, alongside a broader sense of improving economic conditions in the year ahead under the new administration,” the report states.

Manufacturing sector respondents to S&P Global’s survey expressed hope that President Donald Trump’s pro-business policies would drive stronger economic growth. However, some of that optimism was tempered by concerns that some policies—in particular, tariffs—could stoke inflation.

Inflationary pressures intensified in January. Factory input costs climbed at their fastest pace since last August, which the report attributed mostly to supplier-driven hikes in raw material prices. Higher costs were passed on to customers, with the rate of inflation in the good-producing sector hitting a 10-month high.

“Rising price pressures are a concern, with companies reporting supplier-driven price hikes as well as wage growth amid poor staff availability,” Chris Williamson, chief business economist at S&P Global, said, commenting on the flash data. “Higher input cost and selling price inflation was broad-based across goods and services and, if sustained, could add to worries that a combination of robust economic growth, a strong job market, and higher inflation could encourage a more hawkish policy approach from the Fed.”

Several months ago, the Federal Reserve started cutting interest rates after keeping them high for several years in a bid to quash inflation, which hit a 40-year high of 9 percent in June 2022. While Fed officials have signaled further rate cuts, they said any future decisions would be data-dependent. This means that if inflation rises again, rates could rise again, especially if the labor market remain robust.

Recent data show a revival of inflationary pressures, paired with a drop in unemployment and increased hiring. Inflation increased for the third consecutive month in December 2024, to a reading of 2.9 percent in annual terms. At the same time, U.S. employers added 256,000 jobs that month, bringing the unemployment rate down from 4.2 percent to 4.1 percent.

Further, inflation expectations among consumers saw a significant jump in January. The latest sentiment survey from the University of Michigan, released on Jan. 24, shows that consumers expect prices will climb at an annual rate of 3.2 percent over the next five to 10 years, up from a reading of 3 percent in December. They expect inflation to run at a pace of 3.3 percent over the next year, up from a 2.8 percent prediction last month and the highest since May 2024.

“Consumers continued to spontaneously express motives for buying-in-advance to avoid future price increases, and robust auto and retail sales data suggest that consumers are indeed acting on these views,” Joanne Hsu, director of the University of Michigan consumer sentiment survey, said in a statement.

Despite the jump in inflation expectations, consumers’ assessments of their financial situation rose for the fifth consecutive month.