U.S. manufacturing activity showed a noticeable pulse of life in January, with factory production posting its largest monthly gain in 11 months—a result that offers some optimism for a sector that has been pressured by higher borrowing costs and trade frictions. According to data, manufacturing output rose 0.6% in January after being flat in December, outperforming economists’ expectations for a smaller increase.
The improvement was broad-based across both durable and nondurable goods. Durable goods manufacturing output climbed 0.8%, supported by gains in categories such as nonmetallic mineral products, machinery, computer and electronic products, and other durable goods. The report also noted a particularly important detail for supply chains and consumer demand: motor vehicles and parts increased for the first time since August. Nondurable goods manufacturing rose 0.4%, lifted by increases in paper, printing and support, chemicals, and plastics and rubber products.
On an annual basis, the manufacturing sector looked firmer too: factory output was up 2.4% year over year in January, but business leaders have warned that sweeping tariffs under Donald Trump have raised costs for producers and consumers, even as the administration argues import duties are necessary to rebuild domestic industry. Approximately, the sector lost more than 80,000 jobs in 2025, underscoring how challenging conditions have been recently.
The strength in factory output fed into an even stronger headline for the broader industrial sector. The Federal Reserve reported that overall industrial production rose 0.7% in January after a smaller gain in December. Utilities output jumped 2.1%, with the report attributing part of the boost to ongoing effects of freezing weather; mining output dipped 0.2%.
Capacity utilization—a measure of how intensively factories and other industrial facilities are being used—also ticked up, but it still signals slack. Total industrial capacity utilization rose to 76.2%, and manufacturing’s operating rate rose to 75.6%. Both remain below long-run averages (the Fed notes industrial utilization is 3.2 percentage points below its 1972–2025 average, and manufacturing is 2.6 points below its long-run norm).
Economists see potential upside if today’s investment boom in AI-related technology begins to spread more widely through traditional manufacturing and tax cuts could provide an additional lift, though tariffs and high interest rates remain major constraints.
