Manufacturing Growth in January 2025 Hits 50.9% Despite Rising Tariffs Impact
The U.S. manufacturing sector showed its first expansion in over two years in January 2025, but looming tariff increases threaten to reverse these gains.
Key Insights
- The Institute of Supply Management (ISM) Manufacturing PMI climbed to 50.9% in January 2024, marking the first expansion since mid-2021.
- Growth was driven by rising new orders, increased production, and higher employment, reflecting optimism among industry leaders.
- However, upcoming tariff hikes on imports from Canada, China, and Mexico, accounting for nearly 40% of U.S. imports, pose significant risks to this recovery.
In January 2024, the U.S. manufacturing sector experienced its strongest growth in more than two years, signaling a potential turnaround in economic activity. Yet, economists warn that recent trade policy developments could undermine this progress.
The ISM Manufacturing Purchasing Managers’ Index (PMI) surpassed the critical 50% threshold, reaching 50.9% in January—up from 49.2% in December 2023—indicating expansion. This figure slightly exceeded economists' forecasts from sources like The Wall Street Journal and Dow Jones Newswires.
Nevertheless, these figures do not reflect the impact of President Trump's recent tariff increases on imports from Canada and China effective from February 2024, with tariffs on Mexico scheduled for March 2024. These countries collectively represent about 40% of U.S. imports, raising concerns about potential disruptions.
“The manufacturing sector showed encouraging momentum in January, but this is likely to be temporary due to the recent trade war escalation,” stated Matthew Martin, senior U.S. economist at Oxford Economics. “Our analysis forecasts reduced demand for goods, increased inflation, and higher interest rates, all of which could dampen the manufacturing upturn.”
Tariffs Threaten Emerging Manufacturing Optimism
The January report highlighted a third consecutive month of new order growth, the first production increase in nine months, and improved employment levels within the sector.
President Trump has advocated tariffs as a strategy to revive U.S. manufacturing by making imported goods more expensive, encouraging domestic production. However, these measures may also lead to higher costs and supply chain challenges.
The ISM survey was conducted before the tariff announcements. Industry respondents expressed cautious optimism about the economic outlook but noted concerns regarding tariffs and supply chain stability.
According to a Wells Fargo analysis, “Purchasing managers expressed optimism tempered by apprehensions about tariffs and supply chain issues.”
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