The Trump Effect: Manufacturing Bounces Back
President Trump’s inauguration has led to a surge in optimism and demand in the manufacturing sector.
The S&P Global purchasing managers index for U.S. manufacturers recorded not just a surge in confidence about the future but also a return to growth for new orders and output. The index itself moved into positive territory for the first time in seven months, indicating expansion for the factory sector.
New business orders improved for the first time since last June, according to the report released this week. This reflected improved customer confidence in the economy fueling rising demand, according to S&P Global.
“Over the past decade, only two months during the reopening of the economy from pandemic lockdowns have seen business sentiment improve as markedly as recorded in January,” S&P Global economist Chris Williamson said in a statement.
The political uncertainty that hung over the economy going into the election has lifted. It has been replaced by the highest level of confidence in nearly three years, Williamson said. The anticipation of a more business friendly environment—including tax cuts, tariffs, and deregulation—is the main driver of this improvement.
The Institute for Supply Management’s survey produced very similar results. It recorded the first expansion for the sector after 26 months of contraction. New orders rose, output increased, and employment expanded.
Trump Haters May Be Helping Pump Up Demand
Consumer sentiment among Republicans surged to 86.0 in January, according to the University of Michigan’s barometer. That’s the highest level since 2020. And inflation expectations among Republicans fell to less than two percent—an indication that Republicans do not believe that trade policy will push prices higher.
Ironically, some of the increased demand may be fueled by Democrats who loathe and fear Trump. The University of Michigan survey showed that inflation expectations soared among Democrats, and there was a large increase in the share of consumers who said now is a good time to make major purchases because prices are likely to go higher. So, Democrats may be fueling the expansion in manufacturing out of fear of Trump’s policies.
Rising demand in the U.S. may also be helping economies around the globe. The J.P.Morgan Global Manufacturing PMI–a composite index produced by J.P.Morgan and S&P Global Market Intelligence in association with ISM and IFPSM–climbed in January, showing an improvement in operating conditions for the the first time in seven months.
This was likely related to the surge in imports into the U.S. in December. The Commerce Department reported on Wednesday that imports rose 3.5 percent to $365 billion thanks to increased purchases of consumer goods, computers, and industrial supplies. At the same time, however, exports fell. This likely reflects both dollar strength and economic weakness abroad.
This meant a larger than expected climb in the trade deficit to $98.4 billion, a 25 percent increase from the month before. That will be a negative for fourth quarter GDP growth, although it might be offset by even stronger domestic consumption figures than initially reported.
The strength of the manufacturing sector may also explain some of the slowdown in the services sector. The ISM and S&P services PMIs both showed that services continued to expand but at a slower pace. This is likely a reflection of a rebalancing of demand after many months in which manufacturing slumped and services dominated growth. That’s a healthy sign for the economy, in our view.
The bitterly cold winter in much of the country—it snowed several inches in New Orleans for the first time in recent memory—may have slowed demand for both services and manufacturing. If that’s correct, there could be pent-up demand that will drive growth at a faster pace in the months ahead.
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