The numbers: A closely watched index that measures U.S. manufacturing activity rose to 49.1% in January from 47.1% in the prior month, according to the Institute for Supply Management on Thursday. That is the highest level since October.
Economists surveyed by the Wall Street Journal had forecast the index to rise to 47.2%.
Any number below 50% reflects a shrinking economy. Manufacturing has contracted for 15 straight months.
In a separate release, the S&P Global U.S. manufacturing sector PMI registered 50.7 in a final January reading, up from the flash estimate of 50.3 and from a December reading of 47.9. The gain in January is the strongest improvement since September 2022.
Key details: The ISM new-orders index jumped into expansion territory in January, rising 5.5 points to 52.5%. That’s only the second expansion in 20 months.
Production rose 0.5 points to 50.4% in January. That index had been in contraction in 10 out of the last 14 months.
New export orders were a big drag in January, falling 4.7 points to 45.2%. The sector has been weak for the last 18 months. Survey participants are more bearish about China and Europe.
Prices paid rose 7.7 points to 52.9% in the month. Raw-materials prices rose after eight straight monthly declines.
Five out of 18 manufacturing industries reported new orders, including the chemical sector. ISM officials saw the chemical sector as a leading indicator.
Big picture: Regional manufacturing surveys were very weak in January, but the national ISM index showed some signs of life. Economists said it will take time before the sector stabilizes even if the Federal Reserve cuts interest rates.
What the ISM said: Timothy Fiore, chair of the ISM’s manufacturing-survey committee, said that the January data show “the beginning of a next growth cycle — but it’s early.” He said the improvement came after the Federal Reserve signaled it expected to cut rates in 2024, which helped improve investment spending.
What outside economists said: “In short, the manufacturing sector appears to be past the worst, but we see few signs of a raging rebound looming in the data; a gradual further uptrend in activity is a more reasonable bet,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Market reaction: Stocks