US Services and Manufacturing Sector Resilience
The U.S. economy entered 2026 with signs of steady expansion, supported by resilient service-sector activity and a renewed upswing in manufacturing production. January PMI data indicate that both sectors remained in growth territory, reinforcing the view that the broader economy continues to expand despite lingering uncertainties related to tariffs, global demand, and price pressures.
The service sector remained the primary anchor of economic stability. Business activity strengthened modestly in January, with the Services PMI Business Activity Index rising to 52.7, marking three consecutive years of expansion. Growth was supported by an increase in new domestic business, reflecting ongoing demand across key service industries such as finance, communications, and business services. While consumer confidence remained subdued and foreign demand weakened, domestic activity proved sufficiently resilient to sustain overall sector expansion. Firms also reported marginal increases in employment as rising workloads encouraged cautious hiring, though job creation remained modest.
At the same time, U.S. manufacturing showed improving momentum. The Manufacturing PMI rose to 52.4 in January, signalling stronger operating conditions and the sharpest production increase since May 2022. Output growth was particularly notable, as firms ramped up production and continued building inventories, partly in anticipation of future demand improvements. Manufacturers also expressed steady optimism regarding the outlook, expecting lower interest rates, supportive domestic conditions, and reduced import competition to bolster activity over the coming months.
Despite the encouraging production gains, challenges remain. Manufacturing new orders expanded only modestly, while export demand continued to decline amid tariffs and trade uncertainty. Similarly, the service sector experienced weakening foreign demand and persistent cost pressures linked to higher wages and supplier charges. Across both sectors, tariffs remained a key factor driving input cost inflation, though the pace of price increases softened slightly compared with late 2025.
