US Manufacturing Rises Again as Business Optimism Hits 34-Month Peak

February 4, 2025 TruthUSA

The manufacturing industry saw growth for the first time in over two years, driven by increasing demand and heightened business optimism.

In January, the U.S. manufacturing sector recorded its first expansion after over two years of decline, with optimism about future production levels increasing, fueled in part by expectations that President Donald Trump’s policies would enhance business environments.

The Institute for Supply Management (ISM) announced on Feb. 3 that its manufacturing purchasing managers’ index (PMI) climbed to 50.9 percent in January, up from 49.2 percent in December. A PMI reading above 50 percent signifies expansion in the manufacturing sector.

“U.S. manufacturing activity saw a rebound in January after 26 consecutive months of decline,” said Timothy Fiore, chair of the ISM manufacturing business survey committee, in a statement. “Demand has evidently improved, output has grown, and input availability remained favorable.”

Similarly, S&P Global reported on Feb. 3 that its U.S. manufacturing PMI increased to 51.2 in January, up from 49.4 in December, marking the first rise above the crucial 50 mark distinctively separating growth from contraction in seven months.

Both output and new orders demonstrated growth in January, while optimism for production over the coming year surged to a 34-month high, spurred by one of the most significant monthly confidence boosts ever recorded in the survey.

“Manufacturers are reporting that political uncertainties have diminished, and the pro-business stance of the new administration has brightened their outlook,” stated Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. He noted that over the past decade, only two months—during the post-COVID-19 pandemic economic recovery—have seen a similar surge in business confidence.

Improved new orders and greater business confidence led manufacturers to boost their workforce for the third consecutive month, according to S&P Global. The growth in jobs was the highest recorded since June 2024.

According to the ISM report, rising demand also correlated with an expansion in employment.

However, this recovery carries certain risks. The ISM report emphasized worries about escalating input costs, with the prices index surging 2.4 points to 54.9 percent in January from 52.5 percent the previous month. January marked a fourth straight month of price increases, with 21 percent of firms reporting higher costs compared to 14 percent in December.

“Managing a slower pace of price hikes as demand increases will pose a significant challenge for 2025,” Fiore remarked.

Additionally, the S&P Global report indicated that input costs continued to rise in January, causing output price inflation to increase for the third month in a row, hitting its highest level in nearly a year.

“A continued rise in both input expenses and selling prices could be problematic, particularly if inflationary pressures persist in the upcoming months, as heightened price pressures combined with increasing economic growth and rising employment typically discourage rate cuts,” said Williamson.

The continued recovery in manufacturing hinges on various factors, including the overall health of the U.S. economy, global trade dynamics, and the path of the Federal Reserve’s interest rate policies.

At its latest meeting on Jan. 29, the Fed maintained rates within a range of 4.25 percent to 4.5 percent, with analysts at ING highlighting in a recent note that the hawkish stance was warranted due to strong economic performance, a solid job market, and persistent inflation.

This hawkish positioning could lead Fed Chair Jerome Powell into potential conflict with Trump, who recently promised to advocate for interest rate cuts once oil prices decrease.

Following significant rate hikes in 2022 aimed at curbing rampant inflation, which has since incurred a notable decline, higher rates complicate borrowing and typically slow economic growth, specifically in capital-heavy sectors such as manufacturing.

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