The U.S. economy started 2025 on a hopeful note as manufacturing activity returned to growth for the first time in six months, signaling renewed strength in the industrial sector, and the services sector continued to expand.
The latest S&P Global Flash U.S. Manufacturing PMI rose to 50.1 in January, inching above the threshold that separates expansion from contraction. This marks a significant turnaround for an industry battered by months of declining demand and production setbacks.
“Manufacturers are looking forward to a brighter year ahead,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “Expectations of growth over the coming year have surged higher as factories await support from the new policies of the Trump administration.”
Pro-Growth Policies Fuel Optimism
The manufacturing sector’s resurgence coincides with heightened optimism about the economic direction under President Trump’s administration. Looser regulations, tax reductions, and trade protectionism are widely expected to bolster domestic production and investment. These policy shifts have energized both manufacturers and service providers, with overall business confidence reaching levels not seen since mid-2022.
While manufacturers expressed particular enthusiasm, service sector confidence also remained elevated. The broader optimism encouraged businesses to ramp up hiring at the fastest rate in two-and-a-half years, a striking rebound following months of job losses. Service providers led the hiring surge, while manufacturing payroll growth reached a six-month high.
However, the economic rebound comes with challenges. Inflationary pressures intensified in January, with both input costs and selling prices climbing at their fastest pace in four months. Manufacturers attributed rising costs to supplier-driven price hikes for raw materials, while service providers reported increased wage pressures amid ongoing labor shortages.
“Higher input cost and selling price inflation was broad-based across goods and services,” Williamson noted. “If sustained, these pressures could add to concerns that robust economic growth and a strong job market might lead the Federal Reserve to adopt a more hawkish stance.”
A Mixed Picture for Demand
Demand conditions showed signs of divergence across sectors. While manufacturers recorded modest growth in new orders for the first time in seven months, export orders remained weak. The service sector saw continued expansion, albeit at the slowest pace since last April, as adverse weather and a strong dollar dampened activity for some firms.
The rebound in manufacturing and the surging optimism reflect a renewed sense of possibility for the U.S. economy. Yet, rising inflation and potential supply chain disruptions—exacerbated by tariff policies and global economic uncertainties—present challenges that could temper growth.
“The Trump administration’s ability to balance pro-growth initiatives with inflation containment will be crucial in shaping the trajectory of the recovery,” said Williamson.
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