U.S. business activity grew at a slightly faster pace in January, led by stronger manufacturing output, while employment gains remained minimal and tariff-related price pressures persisted, according to S&P Global’s January Flash Purchasing Managers’ Index released Friday.
The S&P Global U.S. Composite PMI Output Index edged up to 52.8 from 52.7 in December, a two-month high. Readings above 50 indicate expansion. The index has now signaled growth for 36 consecutive months, though the latest pace remains weaker than much of the second half of 2025.
Manufacturing accounted for most of the improvement. The Manufacturing Output Index rose to 54.8 from 53.6, its highest level in five months. The headline Manufacturing PMI increased slightly to 51.9 from 51.8, also a two-month high.
Services activity, by contrast, was unchanged. The Services PMI Business Activity Index held at 52.5, matching December’s eight-month low.
Survey data were collected Jan. 12–22.
Despite higher output, demand indicators pointed to softening conditions. New orders improved from December’s 20-month low but remained well below the stronger growth rates seen late last year. Export demand weakened across both sectors, producing the largest drop in new export orders since April 2025. Goods exports declined at the fastest rate since April, while services exports fell at the sharpest pace since November 2022.
“The flash PMI brought news of sustained economic growth at the start of the year, but there are further signs that the rate of expansion has cooled over the turn of the new year compared to the hotter pace indicated back in the fall,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Williamson said the survey data are consistent with annualized gross domestic product growth of about 1.5% in both December and January, suggesting first-quarter growth could fall short of expectations.
Employment remained at a weak point. Payrolls rose only marginally for the second straight month as businesses cited uncertainty, softer sales, and higher costs as reasons for caution. Services companies reported slight job growth, while manufacturing employment slipped to a six-month low.
At the same time, some firms reported difficulty filling open positions, contributing to a rise in backlogs of work, particularly in services. Backlogs increased at the fastest rate since August.
Manufacturers continued building inventories. With production rising faster than new orders, finished stocks increased for the eighth time in nine months, though January’s rise was the smallest since July. Recent inventory growth ranks among the strongest recorded since the survey began in 2007.
Input purchasing rose at the fastest rate since June as firms bought materials to support production. However, inventories of inputs were unchanged overall.
Price pressures remained elevated, especially in manufacturing. Respondents widely cited tariffs as a primary driver of higher input costs. Manufacturing input prices rose at the fastest pace since September, and factory gate prices increased at a five-month high as companies passed costs on to customers.
Service sector input cost inflation eased, and price increases moderated slightly, which firms attributed in part to intensifying competition.
“Increased costs, widely blamed on tariffs, are again cited as a key driver of higher prices for both goods and services in January, meaning inflation and affordability remains a widespread concern among businesses,” Williamson said.
Business confidence in the year ahead remained positive but slipped slightly from late 2025 levels. Manufacturers expressed greater optimism than service providers. Manufacturing sentiment rose to a seven-month high, while services’ confidence fell to a three-month low.
Companies linked optimism to expectations for domestic demand, government stimulus, strong financial markets, and the potential for lower interest rates. At the same time, higher prices, geopolitical concerns, and uncertainty over federal policy weighed on sentiment.
The PMI surveys cover responses from about 650 manufacturers and 500 service providers and are widely used as early indicators of economic conditions. Final January PMI data will be released Feb. 2 for manufacturing and Feb. 4 for services and composite measures.
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