US Manufacturing Shows Signs of Recovery, but Tariffs May Hinder Progress
USA: U.S. manufacturing expanded in January for the first time in over two years, but concerns remain over the sustainability of the recovery following new tariffs imposed by President Donald Trump on goods from three key trade partners. While Trump announced on Monday that he would pause the 25% tariffs introduced on Saturday for Mexican and Canadian imports, a 10% tariff on Chinese goods is still set to take effect. Economists warn that ongoing trade tensions could hinder manufacturing growth, as a stronger dollar, driven by tariff policies, reduces the competitiveness of U.S.-made products.
A survey released on Monday by the Institute for Supply Management (ISM), conducted before the latest trade developments, showed that raw-material inventories at factories were already declining last month, pushing prices higher for the fourth consecutive month. The ISM reported that its manufacturing PMI rose to 50.9 in January, up from 49.2 in December, the highest reading since September 2022 and the first time since October 2022 that the index exceeded 50, signaling growth in the manufacturing sector, which comprises 10.3% of the economy. Economists surveyed by Reuters had anticipated a more modest increase to 49.8.
Manufacturing has faced challenges due to the Federal Reserve’s aggressive interest rate hikes, which totaled 5.25 percentage points in 2022 and 2023 to combat inflation. The Fed began easing monetary policy in September, cutting rates by 100 basis points before pausing in January amid uncertainty surrounding the economic effects of the administration’s policies, including deportations. Wall Street stocks initially fell but later recovered some losses, while the dollar weakened against a basket of currencies, though it remains buoyed by tariff policies. Meanwhile, U.S. Treasury yields declined as investors sought safer assets.
Source: Institute for Supply Management (ISM)