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In January, economic activity in the US manufacturing sector expanded for the first time in more than two years.
The Institute for Supply Management's manufacturing PMI registered a reading of 50.9 in January, up from December's reading of 49.3. Readings above 50 for this index indicate an expansion in activity, while readings below 50 indicate contraction. The manufacturing sector had been in contraction for more than two years.
This could be a bullish development for stocks, Fundstrat head of research Tom Lee recently said in Yahoo Finance's Chartbook.
"To me, the most important chart to watch is the ISM manufacturing turning up in 2025," Lee said. "This series has been below 50 for 26 months now, the longest stretch since 1989-1991, and we think [it] signals an acceleration of cyclical [earnings] growth in 2025."
As Lee's chart shows, when ISM's manufacturing PMI picks up, corporate earnings usually follow.
In a note to clients on Monday, Jefferies US economist Thomas Simons wrote the backdrop looks positive for a continued rebound in the manufacturing sector.
"We see significantly more positive signs for the U.S. manufacturing outlook than negative ones," Simons wrote. "[Interest] rate cuts are on hold, but we still expect that more are coming in the second half of the year. The Trump administration is focused on doing things that (it thinks) will improve U.S. competitiveness in manufacturing, including deregulation, a more accommodative tax environment, and protectionist tariffs. The jury is still out on the net benefit of the tariffs, but the other positive forces are unambiguous."
Another reading on manufacturing activity out Monday also showed positive trends for the sector. The final reading of S&P Global's manufacturing PMI hit a reading of 51.2 in January, above the 49.4 seen in December.
“A new year and a new President has brought new optimism in the US manufacturing sector," S&P Global Market Intelligence chief business economist Chris Williamson said in the release. "Business confidence about prospects for the year ahead has leaped to the highest for nearly three years after one of the largest monthly gains yet recorded by the survey."
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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