The U.S. manufacturing sector recorded its strongest expansion in two years during January, driven by easing supply chain bottlenecks and improving inventory management across industries.
The Institute for Supply Management's Purchasing Managers' Index rose to 54.3, well above the 50 threshold that separates expansion from contraction. New orders and production both showed robust gains.
Supply Chain Normalization
After years of disruption, supply chain metrics have largely returned to pre-pandemic levels. Delivery times have shortened, raw material availability has improved, and shipping costs have declined significantly from their 2024 peaks.
"We're seeing a virtuous cycle where improved supply chains are enabling manufacturers to meet demand more efficiently," said Patricia Johnson, senior economist at the National Association of Manufacturers. "This is translating into better margins and increased investment."
Sector Highlights
Automotive manufacturing led the gains as semiconductor shortages that plagued the industry have largely resolved. Electronics manufacturing also showed strength, benefiting from increased demand for AI-related components.
Employment in the sector increased for the fifth consecutive month, though companies continue to report challenges in finding skilled workers for specialized positions.