Recovery Signals: US Manufacturing Returns to Expansion
US manufacturing activity surprised at the start of 2026. After a long period of sluggishness, the factory sector suddenly returned to expansion in January, supported by a surge in new orders and equally strong production.
Data from the Institute for Supply Management released on Monday (February 2nd) showed the manufacturing index rose to 52.6 from 47.9. A level above 50 signifies expansion—and this latest figure even surpassed all estimates in a Bloomberg survey of economists, indicating the market is indeed picking up on a more “real” recovery signal.
What makes this report particularly poignant is that the new orders component jumped nearly 10 points, while the production index also rose strongly—both posting their fastest growth rates in nearly four years. Furthermore, the backlog/unfilled orders rose for the first time since 2022, and export orders also improved.
This strength in demand also connects to a crucial factor: customer inventories fell sharply (the largest contraction since mid-2022). If customer inventories are low, they typically need to restock—which can provide additional fuel for factory orders and production in the coming months.
On the labor front, conditions are improving but not yet fully recovered. The factory employment index rose 3.3 points to 48.1 (a year-high). This means the number of workers is still shrinking, but at a slower pace—an indication that pressures are easing.
However, two things are keeping the market cautious. First, supplier deliveries have slowed (the indicator rose to its highest level since May), signaling longer lead times for production inputs. Second, costs are still "sticky": the prices paid index rose to 59 (a four-month high), indicating that input price pressures have not yet fully subsided.
Meanwhile, manufacturers are still reducing inventories, though not as rapidly as in the previous month. So the big headline: US manufacturing is starting to revive, demand appears to be returning strongly—but costs and supply chain issues remain, issues that could influence future moves.
Source: Newsmaker.id
