A modest pickup in global economic activity at the start of 2026 is bringing a familiar complication for wholesale distributors: demand is improving, but so are costs.
New data from S&P Global Market Intelligence show the J.P. Morgan Global PMI Composite Output Index rose to 52.5 in January from 52.0 in December, indicating slightly faster expansion across manufacturing and services. The reading, however, was still the second lowest since last September. S&P Global said the level of activity points to global gross domestic product growing at an annualized pace of about 2.6% below the average seen before the pandemic.
For distributors, the message is mixed. Orders are picking up in parts of the industrial economy, but the cost of replacing inventory is climbing at the same time.
S&P Global said January’s improvement was driven by stronger manufacturing output. Production rose at one of the fastest rates since mid-2024, supported by the quickest increase in new factory orders in a year. That kind of momentum often shows up first in the products distributors sell into maintenance, repair, and operations, electrical, automation, safety, metalworking, and other industrial categories tied to factory activity.
At the same time, S&P Global reported that companies used the rise in demand to pass higher costs on to customers. Output prices rose at the fastest pace in five months for both manufacturing and services.
The source of those higher costs will be familiar to distributors. S&P Global said manufacturers reported the fastest increase in input prices in three years, citing sharp movements in metals and energy prices often linked to geopolitical tensions and tariff-related pressures.
That combination — improving orders and rising replacement costs — creates a challenging environment for distributors trying to balance inventory, pricing, and customer expectations. Restocking too aggressively can leave companies holding higher-cost inventory if demand softens. Waiting too long can mean paying more later and risking product shortages if supply tightens.
Business confidence remains another warning sign. Despite the improvement in activity, S&P Global said sentiment stayed below average in January as companies cited geopolitical uncertainty and U.S. policy concerns. Employment growth was described as marginal, suggesting many companies remain cautious about committing to expansion.
For distributors, that often translates into uneven buying behavior from customers: more quotes, slower approvals and projects that start and stop, even when shipment volumes hold steady.
Export demand also showed signs of stabilizing, and backlogs of work rose at the fastest pace since last August — signals that production may continue to expand in the near term. But S&P Global emphasized that the gap between actual output and business confidence remains a concern for the sustainability of recovery.
Country and sector data in the report point to wide variation across regions, reinforcing the likelihood that demand will be uneven by geography and end market rather than broad-based.
S&P Global is scheduled to release its next round of “flash” PMI data on Feb. 20, which will offer a clearer read on whether early first-quarter trends are strengthening or losing momentum. For distributors, those early indicators — especially new orders, input prices, and supplier delivery times — often provide advance notice of whether the quarter will be defined more by volume growth or by the challenge of managing rising costs.
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