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The Federated Hermes Inflation Dashboard is a snapshot of US inflation. The dashboard’s indicators work together to create a more comprehensive picture of inflation’s trajectory along with comparisons to previous time periods.
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How to think of the report as a whole? Purchases had been trimmed in recent years thanks to inflation. Then tariffs added to the hesitation. But there comes a time when purchases can’t be postponed further, and it could be that we’ve reached that point.
Fortunately, tailwinds are in place that could give the ISM some additional momentum. The One Big Beautiful Bill’s capital expenditures provision, for one, should prompt spending. Also, the fed funds rate has come down significantly and likely still has further to go. The remarkable thing, in fact, is not that manufacturing is finally growing but that it took so long for this to happen. When the ISM is below 50 for an extended period of time, it’s more often the case that the economy is in a recession.
Of course, even if we haven’t had a recession in the past few years, it has been a decidedly odd time, with talk of rolling recessions and with steep drawdowns in both 2022 and 2025. So this sign of expansion may be an indication of yet another return to normality in economic life.
Our outlook:
This development, while welcome, was always to be expected sooner or later. The economy has been growing, so one would expect the manufacturing sector to reflect that. A continued growth scenario in US manufacturing would likely see the equity market continue to broaden beyond the big tech names into more cyclical sectors.
If, on the other hand, manufacturing growth were to dissipate due to a downturn, defensive sectors and fixed income would likely benefit. Alternately, if market narrowing led by megacap tech were to reassert itself, we could see a return to anemic manufacturing activity and underperformance by the S&P 493.
For more on our scenario-led outlooks read our monthly and quarterly Capital Markets publications.
(The S&P 500 index excluding the "Magnificent Seven" mega-cap technology and growth companies that have dominated market performance and AI-driven growth in recent years.)
The US manufacturing sector expanded in January, as measured by the ISM’s Manufacturing Purchasing Managers’ Index, with a reading of 52.6. This was the highest reading since 2022, the largest non-recessionary jump since 1995 and, potentially, a sign that the economy is beginning to shift into a new gear.
While several of the ISM’s subindexes showed expansion, it was new orders that really drove the jump, rising from 47 to 57. The customers’ inventories subindex was listed as “too low,” which is a sign of forthcoming production. One caveat: January can be a tricky month as firms reorder after the holidays. Also, some of the activity may simply be an effort to get ahead of tariff-related price hikes. So, an encouraging reading but not the last word.
FebruarY 9, 2026
After a protracted downturn, the sector turns a corner.
Green shoots in US manufacturing
Our latest views on data, trends and events influencing the markets.
Capital Markets
Growing again?
After 26 consecutive months in contraction, US manufacturing may be bouncing back
Bloomberg as of February 4, 2026.