The U.S. manufacturing sector showed a notable improvement in the first month of 2026, with production surging at the joint-fastest rate since May 2022.
According to the latest S&P Global US Manufacturing PMI report, the headline index rose to 52.4 in January, up from 51.8 of last month– a growth driven by a sharp increase in factory output.
The problem, however, lies on the demand side. While new orders for U.S. products returned to growth, the increase was only modest.
New export orders also fell for the seventh consecutive month, with manufacturers citing tariffs and ongoing trade uncertainty as major hurdles to sales, particularly in South America and Europe.
The mismatch between strong production and weak sales has led to a significant accumulation of unsold products in warehouses, according to Chris Williamson, chief business economist at S&P Global Market Intelligence. January 2026 also marks the sixth consecutive month in which finished goods stocks have increased in the United States.
“Over the past three months, the survey indicates that factories have typically produced more goods than they have sold to a degree we have not previously seen since the global financial crisis back in early 2009. This highly unusual situation is clearly unsustainable, hinting at risks of a production slowdown and a potential knock-on effect on employment, unless demand improves markedly in the coming months,” Williamson explained.
The report suggests that customer resistance to high prices, often blamed on tariffs, is a key factor behind low sales.
These same tariffs were also reported to be driving up input costs for manufacturers. In response, factories raised their own selling prices at the fastest rate since August of last year.
“While just below trend, business growth expectations for the year ahead are, however, holding up as firms anticipate improving demand, thanks in part to lower interest rates, reduced import competition due to tariffs, and more government support. However, political uncertainty remains a key drag on business sentiment,” Williamson noted.
