US ISM Manufacturing Back in Growth at Start of 2025, Waking Up from More Than 2 Years of Doldrums on Cyclical Pickup in New Orders, Output, Jobs

–ISM Manufacturing Index at 50.9 Vs. 49.2 in December, Again Well Above Consensus (49.5)
–ISM’s Fiore: Upward Help from Seasonal Adjustments in January 2025 Half of Those in January 2024
–Fiore: Trump Tariffs Won’t Help US Firms; Doesn’t Make Sense to Pay Duties on Own Goods Made in Canada, Mexico
–Fiore: Demand for US Manufacturers Sees Cyclical Rebound Without Help of Further Fed Rate Cuts

By Max Sato

(MaceNews) – U.S. manufacturing activity sprang back to life in January, ending 26 months of contraction (nine months in the previous data series) as inventories had fallen to levels that triggered a steady increase in new orders on export and capital goods demand and pulled factory output out of the doldrums, the latest monthly data from the Institute for Supply Management showed Monday.

Despite the growing uncertainties ahead of a trade war that has just erupted between Washington and Ottawa, the sector index compiled by the Institute for Supply Management popped above the make-or-break line of 50, rising a more than expected 1.7 points to 50.9 in January after edging closer to growth territory at 49.2 in December from 48.4 (recent figures have been revised in an annual update on seasonal adjustments). The index easily beat the consensus call of 49.5.

“Demand and production improved; and employment expanded,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “However, staff reductions continued with many companies, but at weaker rates.” Fiore had predicted that the ISM headline index would rise above 50 in the first quarter, in January or February, on signs of a pickup toward the end of 2024.

“Prices growth was moderate, indicating that further growth will put additional pressure on prices,” he said. “As predicted, maintaining a slower rate of price increases as demand returns will be a major challenge for 2025.”

Fiore told reporters that the Trump tariffs would not help U.S. manufacturing firms because “it doesn’t make sense” to pay duties on their own goods produced at factories in Canada and Mexico. In the face of high uncertainty over the new administration’s trade policy, “I think you just have to grit your teeth here for the rest of the week to see what happens,” Fiore said.

President Donald Trump launched a trade war by signing executive orders on Saturday to impose 25% tariffs on Canadian and Mexican imports to the U.S. and an additional 10% on China over illegal immigration and drug trafficking for which he blames those countries.

Canadian Prime Minister Justin Trudeau has retaliated with similar 25% duties on U.S. goods while Trump on Monday delayed his 25% tariff on imports from Mexico for a month as his counterpart Claudia Sheinbaum agreed to deploy 10,000 additional troops to the border.

Asked if the U.S. manufacturing sector has seen a revival of demand without the help of further interest rate cuts by the Federal Reserve, Fiore replied that the sector is having a cyclical rebound after the long doldrums, adding that the Trump tariffs will probably support more rate cuts from the Fed, which has been cautious amid resilient economic growth and sticky services inflation.

A few industries are performing well, led by chemical producers, Fiore said, but he also warned that there is “significant price growth there.”

Among the five subindexes that directly factor into the manufacturing PMI, four were in positive territory: the new orders index at 55.1 (+3.0 points), production 52.5 (+2.6), employment 50.3 (+4.9), supplier deliveries 50.9 (+0.8) and manufacturing inventories 45.9 (-2.5).

Among others, the prices paid index at 54.9 (+2.4) indicated raw materials prices increased for the fourth straight month while the new export orders index at 52.4 (+2.4) showed possible rush shipments to China before Beijing could slap any retaliatory duties on goods from the U.S.

In ISM data, the months of December and January reflect statistical adjustments made to correct month-to-month surges or plunges caused by seasonal factors, such as much shorter operation days during the yearend holiday season, re-stocking ahead of the Lunar New Year (Jan. 29 this year) and winter weather disruptions for those two months.

Fiore told reporters that the effects of the upward bias coming from seasonal factors in January 2025 are half of those that pushed up the January 2024 ISM headline number (the purchasing managers’ index), and stressed that there is stronger demand at the start of 2025 compared to a year earlier.

In non-seasonally adjusted data, the manufacturing PMI was at 49.96, basically at  the crucial line of 50 when rounded up. The new orders index was 53.2 (vs. an adjusted 55.1), production at 50.5 (52.5), employment at 49.3 (50.3), supplier deliveries 50.9 (50.9) and manufacturing inventories 45.9 (45.9).

The new orders index expanded in January for the third consecutive month after seven months in contraction, registering 55.1, an increase of 3.0 percentage points compared to December’s seasonally adjusted figure of 52.1. The index hasn’t indicated consistent growth since a 24-month streak of expansion that ended in May 2022.

The production index swung back into expansion territory in January, rising 2.6 points to 52.5 from 49.9. The index had been in contraction for eight consecutive months. The last time the index registered above 50 was in April 2024 (50.7).

The employment index stood at 50.3 in January, 4.9 points above December’s reading of 45.4. and after contracting in 14 of the last 16 months. Of the six big manufacturing industries, two – chemical and transportation equipment producers –expanded employment. Firms continued slicing head counts through layoffs, attrition and hiring freezes. “This action is supported in January by the approximately 1-to-1 ratio of hiring versus staff-reduction comments, compared to a 1-to-2 ratio the previous month, meaning less workforce reduction activity is occurring as we enter 2025,” Fiore noted.

Delivery performance of suppliers to manufacturing organizations was marginally slower in January, with the supplier deliveries index registering 50.9, a 0.8-point rise from 50.1 the previous month. It follows a contraction in November preceded by four consecutive months of slower deliveries, with four straight months of faster deliveries before that. After a reading of 52.4 in September 2022, the index went into contraction territory the following month and remained there for 20 out of 21 months (with February 2024 the exception). It is the only index that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.

The manufacturing inventories index contracted at 45.9 in January, down 2.5 points from 48.4 at the end of 2024. The last time the index registered above 50 was in August (50.2). Firms produced more goods and likely did not receive as much material as desired, Fiore said. “The inventory account will most likely remain dynamic as supply and demand come into better balance,” he said.Among other subindexes, the prices paid index remained elevated at 54.9 in January, up 2.4 points from 52.5 in December, indicating raw materials prices increased for the fourth straight month, likely reflecting the agreement and deployment of prices by buyers for 2025. “Mill materials (steel, aluminum and copper), food elements and natural gas registered increases, offset by plastic resins and diesel fuel moving down in price,” Fiore said, noting that 21% of companies reported higher prices in January, compared to 14% in December.