WASHINGTON (Reuters) – U.S. manufacturing grew for the first time in more than two years in January amid strong orders, but a measure of prices paid by factories for raw materials rose solidly, and more increases are likely after President Donald Trump imposed tariffs on goods from Canada and Mexico at the weekend.
The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI increased to 50.9 last month, the highest reading since September 2022, from 49.2 in December.
It was the first time since October 2022 that the PMI rose above the 50 mark, indicating growth in the manufacturing sector, which accounts for 10.3% of the economy. Economists polled by Reuters had forecast the PMI rising to 49.8.
The tentative recovery, likely partly driven by hopes of tax cuts, could be short-lived as tariffs are expected to raise the costs of raw materials and snarl supply chains. Trump on Saturday slapped 25% tariffs on Canadian and Mexican goods that are due to take effect on Tuesday.
Manufacturing has been undercut by the Federal Reserve hiking interest rates by 5.25 percentage points in 2022 and 2023 to tame inflation. The U.S. central bank started its policy easing cycle in September. It lowered rates by 100 basis points before pausing in January amid uncertainty about the economic impact of the administration’s policies, including deportations.
Manufacturing contracted 0.4% from the fourth quarter of 2023 through the fourth quarter of 2024, Fed data showed.
The ISM survey’s forward-looking new orders sub-index jumped to 55.1 last month from 52.1 in December. Production at factories also picked up.
Its measure of prices paid by manufacturers raced to an eight-month high of 54.9 from 52.5 in December, where economists had forecast a rise to 53.5.
Imports grew, suggesting manufacturers were front-loading materials ahead of tariffs. Factory employment expanded for the first time since May, with the manufacturing jobs index rebounding to 50.3 from 45.4 in December.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
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