By Lucia Mutikani
WASHINGTON, Feb 2 (Reuters) – U.S. factory activity grew for the first time in a year in January as businesses placed new orders after the holiday season, but the improvement was likely temporary, with manufacturers still complaining about the uncertainty wrought by a fluid trade policy.
Respondents in the Institute for Supply Management survey on Monday were markedly more downbeat than optimistic. Some survey respondents noted the emergence of what they called an anti-American buyer sentiment while others said the Trump administration’s policies had made it difficult to plan ahead.
President Donald Trump last month threatened additional tariffs on European allies for rebuffing his demands for the U.S. to buy Greenland, before abruptly backing down. The U.S. Supreme Court is due to rule on the legality of Trump’s sweeping tariffs, adding another layer of uncertainty.
“Tariffs and further tariff threats are still freezing small businesses that cannot afford to risk betting on the president’s tariff negotiation tactics paying off without the need to implement them,” said Mark Streiber, economic analyst at FHN Financial. “Look for a decline in the index in February.”
The ISM said its manufacturing Purchasing Managers Index rebounded to 52.6 last month. It was the first time in 12 months that the PMI was above 50 and the highest reading since August 2022, indicating growth in manufacturing, which accounts for 10.1% of the economy.
The PMI was at 47.9 in December, and had been in contraction territory for 10 straight months. Economists polled by Reuters had forecast the PMI would rise to 48.5.
Susan Spence, who chairs the ISM Manufacturing Business Survey Committee, also noted that in addition to reordering after the holiday, “some buying appears to be to get ahead of expected price increases due to ongoing tariff issues.”
Manufacturing has yet to experience the renaissance Trump envisioned with his tariffs. Manufacturing employment dropped by 68,000 jobs in 2025. Factory production contracted at a 0.7% annualized rate in the fourth quarter, data from the Federal Reserve showed. There are, however, some pockets of strength, mostly in the technology industry, thanks to an artificial intelligence investment boom.
Nine industries, primary metals, transportation equipment and machinery reported growth last month. Among the eight industries reporting contraction were textile mills, electrical equipment, appliances and components as well as miscellaneous manufacturing.
Tax legislation, which made bonus depreciation permanent among other perks, could provide some support as it comes into effect. But tariffs could offset the benefits, judging from some of the dour comments from respondents.
Some makers of transportation equipment reported that “across the board, buyers continue to stand on the sidelines,” while others noted that “as we enter 2026, every conversation revolves around hope that the second half of 2026 starts the turnaround,” adding “it’s hard to set strategy on hope, but thanks to the uncertainty brought about by this administration, here we are.”
MANUFACTURING REPORTING ANTI-AMERICAN BUYER SENTIMENT
Machinery manufacturers said buyers were reluctant to spend “despite beneficial tax policies,” adding that “geopolitical tensions are fueling ‘anti-American’ buyer sentiment, and sales are being lost.” Makers of computer and electronic products reported that, “Another round of emotionally charged tariffs seems imminent, changing the landscape once more.”
Manufacturers of computer and electronic products described business conditions as remaining uncertain, noting customers were cautious and that “broad-based inflation continues.”
Food, beverage and tobacco products manufacturers said “tariff uncertainty is creating volatility in the supply chain,” adding that a construction boom driven by data centers and energy projects was “straining the contract labor availability.”
The ISM survey’s forward-looking new orders sub-index jumped to 57.1 last month, the highest level since February 2022, from 47.4 in December. A measure of backlog orders increased to the highest level since August 2022, while exports recovered a bit.
The surge in new orders, however, meant some stress on supply chains and higher input costs.
The survey’s supplier deliveries index increased to 54.4 from 50.8 in the prior month. A reading above 50 indicates slower deliveries. That change could have contributed to the rise in the PMI. A lengthening in suppliers’ delivery times is normally associated with a strong economy and high demand, but could also be a sign of supply chain bottlenecks related to tariffs.
The survey’s prices paid measure increased to 59.0 from 58.5 in December, in line with forecasts. That reading would suggest goods prices still have more room to rise and contribute to keeping inflation above the Federal Reserve’s 2% target for some time.
The U.S. central bank last week left its benchmark overnight interest rate in the 3.50%-3.75% range. Fed Chair Jerome Powell attributed the overshoot in inflation to tariffs, adding that “there’s an expectation that sometime in the middle quarters of the year we’ll see tariff inflation topping out.”
Factory employment contracted further in January, though the pace of decline slowed. The ISM noted that companies were laying off workers and not filling open positions “due to uncertain near- to mid-term demand.” The survey’s measure of manufacturing employment rose to 48.1 from 44.8 in December. The employment index has since January 2023 contracted in 36 of 37 months.
“The Fed will view the rapid pace of goods demand and elevated inflation coming from the manufacturing sector by actively guarding the inflation mandate,” said Scott Anderson, chief U.S. economist at BMO Capital Markets. “The ISM manufacturing data support the view that the Fed will remain on the sidelines at the March meeting.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)
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