Weekly Update 2/6/2026: US ISM Figures for Manufacturing and Services Come in Strong for January
Domestic Economic News
US manufacturing activity unexpectedly expanded in January at the fastest pace since 2022, energized by solid growth in new orders and production. The Institute for Supply Management’s manufacturing index rose to 52.6 from 47.9, according to data released Monday. Readings greater than 50 indicate expansion, and the latest figure topped all projections in a Bloomberg survey of economists. Following nearly a year of contraction, the demand-related spike in factory activity is welcome news. Sustained growth would help provide reassurance that manufacturing is on the mend after languishing the past three years. The ISM report showed a nearly 10-point increase in a gauge of new orders and a firm advance in the production index — both of which indicated the fastest growth in nearly four years. Order backlogs expanded for the first time since 2022, while export orders also increased. Treasury yields and the dollar rose, while the S&P 500 remained higher after the report. The strength in demand reflected in part a decline in a measure of customer inventories, which contracted by the most since mid-2022. Lean customer stockpiles have the potential of providing more of a tailwind for factory orders and production in the coming months. “Although these are positive signs for the start of the year, they are tempered by commentary citing that January is a reorder month after the holidays, and some buying appears to be to get ahead of expected price increases due to ongoing tariff issues,” Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said in a statement. Nine industries reported growth last month, including apparel, fabricated metal products, transportation equipment and machinery. Eight contracted. The ISM gauge of factory employment climbed 3.3 points to a one-year high of 48.1, indicating headcount shrank but at a slower pace. A measure of supplier delivery performance climbed to the highest level since May and indicated manufacturers were facing longer lead times for inputs used in production. At the same time, the report also indicated that manufacturers are finding little relief from elevated input costs. The ISM prices-paid index climbed in January to a four-month high of 59.
US companies added fewer jobs than expected in January, pointing to a continued slowdown in the labor market at the start of the year. Private-sector payrolls increased by 22,000 after a downward revision to the prior month, according to ADP Research data released Wednesday. The figure was short of all estimates in a Bloomberg survey of economists. The ADP figures will likely offer this week’s fullest picture of the labor market in January as official data from the Bureau of Labor Statistics were delayed due to the partial government shutdown. BLS said it will reschedule the January jobs report, which was originally due Friday. While there have been some signs of stabilization in recent months, the weaker-than-expected private payroll growth suggests the labor market was still cooling in January. A number of large companies have recently announced plans to cut jobs, including Dow Inc. and Amazon.com Inc., but the latest unemployment claims data suggest layoffs are still limited. “I think there are signs of that stabilization in here,” said Sarah House, a senior economist at Wells Fargo & Co. “What we saw today was a very stagnant picture of the labor market. Hiring isn’t getting materially worse, but it’s not getting materially better.” Education and health services led the advance in hiring, and have been responsible for much of the growth in payrolls in the years since the pandemic. While overall hiring bounced back strong initially, job gains have been more tepid recently. “The last two years of stability has been one that I’ve been watching with weariness, and the fact that it is such a narrow path of hiring has also been a concern,” Nela Richardson, chief economist at ADP, said on a call with reporters. Richardson is a contributor to Bloomberg Television. Meanwhile, professional and business services shed the most jobs since June. Payrolls declined at large businesses and were stagnant at firms with fewer than 50 employees. ADP bases its findings on payrolls covering more than 26 million US private-sector employees. The ADP report, published in collaboration with the Stanford Digital Economy Lab, showed workers who changed jobs saw a 6.4% increase in pay, decelerating from the prior month. Those who stayed put saw a slight pickup in pay gains. BLS’s January jobs report should be rescheduled soon now that the shutdown has ended. That release will also include revisions to annual payrolls, which are expected to show much slower job growth in the year through March 2025 than initially thought.
US service providers registered the strongest back-to-back growth since 2024 last month as business activity picked up. The Institute for Supply Management’s index of services was unchanged at 53.8 in January, matching the highest since October 2024, according to data released Wednesday. Readings above 50 indicate expansion in the largest part of the economy. The composition of the report painted a more nuanced picture. While a pickup in business activity underpinned the overall measure, orders growth cooled and employment barely expanded. The ISM measure of business activity, which parallels the ISM’s factory output gauge, climbed more than 2 points to 57.4 — the highest since October 2024. Eleven industries reported growth last month, led by health care, utilities, construction and retail trade. Five, including transportation and warehousing, contracted. ISM’s employment gauge showed the first back-to-back months of expansion since early last year. The new orders index, meanwhile, slipped to 53.1 from a one-year high. What’s more, the report indicated a slump in demand from overseas customers, with export bookings contracting at the fastest rate since March 2023. The report showed an index of prices paid for services and materials climbed to a three-month high of 66.6. Changes in trade policy by the Trump administration are also prompting some companies to adjust their supply chains. The ISM’s supplier deliveries index rose to the highest since October 2024, indicating longer lead times.
US job openings unexpectedly fell in December to the lowest level since 2020 and layoffs edged up, adding to evidence of sluggish demand for workers. Available positions decreased to 6.54 million from a downwardly revised 6.93 million reading in November, according to Bureau of Labor Statistics data out Thursday. The latest figure was below all estimates in a Bloomberg survey of economists. The pullback in openings was driven by professional and business services, as well as retail trade. The rise in layoffs reflected more cuts in transportation and warehousing. The number of hires also climbed but remained subdued. The slide in vacancies indicates companies continue to be selective about their hiring tempo as they assess the size of their labor forces and economic activity. With the number of unemployed slightly exceeding openings, the figures also reinforce the Federal Reserve’s view that wage growth is not a source of inflationary pressures. The JOLTS report showed the number of vacancies per unemployed worker, a ratio Fed officials watch closely as a proxy for the balance between labor demand and supply, held at 0.9 in December. At its peak in 2022, the ratio was 2 to 1. The Fed left interest rates unchanged during their January meeting given solid economic growth and signs of stabilization in the labor market. But Chair Jerome Powell signaled that further weakening in the job market could prompt additional rate cuts. Recent jobless claims data, which rose last week amid frigid weather, have shown few signs of widespread layoffs despite some high-profile announcements of workforce cuts. Amazon.com Inc. and United Parcel Service Inc. have recently laid out additional plans to reduce headcount on top of previous announcements in 2025. Those reductions contributed to more than a doubling in the number of US announced job cuts in January from a year earlier, according to Challenger, Gray & Christmas Inc. Hiring intentions also softened, the outplacement firm’s data showed earlier on Thursday.
Consumer confidence surveys have also shown anxiety about the job market is building. The highest share of consumers since February 2021 said that jobs were currently hard to get, data from the Conference Board showed last month. According to the JOLTS report, the so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, was unchanged near the lowest since the pandemic. Some economists have questioned the validity of the JOLTS data, in part due to the survey’s low response rate and sometimes sizable revisions. A separate index by job-posting site Indeed, which is reported on a daily basis, showed openings rose in December. The JOLTS report, initially slated for earlier this week, was delayed by the partial federal government shutdown.
Interest Rate Insight and the Fed
Mortgage rates in the US rose for a third week, adding slightly to housing costs with the key spring sales season ahead. The average for 30-year, fixed loans was 6.11%, up marginally from 6.1% last week, data from Freddie Mac showed Thursday. Housing demand has remained sluggish even as rates dropped from nearly 7% a year ago. But the real test will come over the next couple of months as the market’s busiest season begins. If all goes well, borrowing costs at or below 6% will lure in more buyers and sellers, helping to thaw the frozen market. Rates are far more appealing than they were a year ago, said Jake Krimmel, senior economist with Realtor.com. “They’re way lower,” Krimmel said. “That means we’re going to see a lot more prospective homebuyers.”
Impactful International News
UK house prices recovered at the start of 2026, according to Nationwide Building Society, largely reversing a dip in the weeks after the Labour government’s tax-raising budget. Nationwide said the average value of properties rose 0.3% in January to an average price of £270,873 ($370,600), after a 0.4% fall the previous month. It was in line with economists’ expectations. Prices were 1% higher compared with a year earlier. Economists have predicted a stronger year for the property market after the patchy performance and small price gains seen in 2025. However, there may be some overhang from Chancellor of the Exchequer Rachel Reeves’ latest tax hikes, which included a new levy on homes worth more than £2 million that will take effect in 2028. Rising unemployment and still-elevated mortgage rates may constrain the market even as budget uncertainty lifts. Data on Friday showed demand for home loans was weak in December with mortgage approvals falling to the lowest in 18 months. “House prices started 2026 on a soft but positive footing,” said Martin Beck, chief economist at WPI Strategy. “The main downside risk would be a sharper deterioration in the labor market, while a faster-than-expected fall in mortgage rates could provide some upside.” While figures from Moneyfacts suggest the average two-year fixed mortgage rate has fallen to 4.85% from around 5.5% a year ago, borrowing costs remain much higher than they were before inflation took off after the pandemic. Nationwide has predicted that house prices will climb between 2% to 4% this year and Capital Economics has forecast a 3.5% rise for the year to the fourth quarter of 2026. “Housing market activity is likely to recover in the coming quarters, especially if the improving affordability trend seen last year is maintained,” said Robert Gardner, Nationwide’s chief economist. He said that a buyer with an average UK income buying their first home with a 20% deposit would have a monthly mortgage payment equivalent to 32% of their take-home pay. That is slightly above the long-term average of 30% but well below the recent highs of 38% in 2023. London saw the biggest improvement in affordability in 2025 after a weak year for prices, though it remains the UK’s most expensive region.
Euro-area inflation sank well below the European Central Bank’s 2% target as officials weigh their next steps on interest rates. Consumer prices rose 1.7% from a year ago in January — down from a revised 2% in December and in line with the median estimate in a Bloomberg survey. The reading is the weakest since September 2024. Core inflation, excluding volatile food and energy costs, unexpectedly eased to 2.2% — the lowest since October 2021. The closely watched services gauge slowed to 3.2%, Eurostat said Wednesday. The data arrive in the midst of the ECB’s first interest rate-setting meeting of 2026, with analysts expecting borrowing costs to be left at 2% for a fifth straight time on Thursday. After falling short this year and next, inflation is projected to return to the ECB’s goal and policymakers generally consider themselves well placed. A minority, however, still frets about a more durable undershoot. The euro’s recent rally could heighten such fears.
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