(Feb 3): US factory activity expanded last month for the first time since 2022 as orders ramped up and production quickened, pointing to a brighter manufacturing outlook.

The Institute for Supply Management’s (ISM) manufacturing gauge rose 1.7 points in January to 50.9, the highest since September 2022, according to data released on Monday. Readings above 50 indicate growth. The surveys were conducted before President Donald Trump announced 25% tariffs on imports from Canada and Mexico that risk disrupting supply chains for American producers.

A measure of new orders rose three points to 55.1, the strongest growth since May 2022. The fifth straight monthly increase in the index, which illustrates a pickup in demand, led producers to ratchet up output.

The ISM production gauge moved solidly into expansion territory, climbing 2.6 points to 52.5 — the best reading since March. That in turn encouraged manufacturers to bolster headcounts somewhat. The factory employment index expanded last month, though barely, for the first time since May.

While the survey suggests optimism is gradually building among factory managers, the threats of tariffs, plodding overseas economies and a stronger US dollar risk tempering enthusiasm about a more favourable regulatory environment and pro-business fiscal policy.

Stocks declined and the dollar strengthened early on Monday after Trump announced this weekend that he plans to raise import duties on goods from America’s top trading partners. He also said that tariffs on the European Union “will definitely happen”. Both Canada and Mexico have pledged to retaliate if Trump follows on through on an executive order aimed at curbing illegal migration and the illicit drug trade.

Producers are also contending with elevated costs amid a healthy demand environment. The ISM’s gauge of prices paid rose by 2.4 points to 54.9, the highest since May.

Meanwhile, inventory levels at manufacturers shrank at a faster pace, indicating production growth may remain healthy in coming months.

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