Have you ever had that feeling when everything seems to be humming along just fine, only to suddenly sense a subtle shift—like the engine of a car quietly losing a bit of its power? That’s exactly the vibe coming out of the latest US economic data. The flash Purchasing Managers’ Indexes (PMIs) for January have just been released, and they tell a story that’s hard to ignore: the expansion that many were counting on appears to be cooling off noticeably.
Both the manufacturing and services sectors came in softer than economists had predicted. While the numbers still sit above the 50 mark that separates growth from contraction, the miss was clear enough to raise eyebrows. When you put it all together, the data is now pointing toward annualized GDP growth hovering around 1.5% for the past couple of months—hardly the robust pace many were hoping to see at the start of 2026.
A Closer Look at the January Flash PMIs
Let’s start with the headline figures. The Manufacturing PMI edged up slightly to 51.9 from December’s 51.8, but it still fell short of the consensus forecast of 52.0. Meanwhile, the Services PMI held steady at 52.5—again, unchanged from the previous month and below the expected 52.9. The Composite Output Index, which combines both sectors, came in at 52.8, up a hair from 52.7 but missing the anticipated 53.0.
What stands out here is the consistency of the miss. It’s not just one sector dragging the other down; both are showing signs of moderation. And when you dig a little deeper into the sub-components, the picture becomes even clearer.
New Business Growth Losing Momentum
One of the most telling details is the softening in new order growth. Across both manufacturing and services, businesses reported that incoming orders have slowed recently. In manufacturing, export orders in particular took a noticeable hit. This isn’t entirely surprising given ongoing global trade uncertainties, but it’s still a warning sign that demand—both domestic and international—isn’t accelerating the way many had anticipated.
In services, the story is similar. While client demand remains positive overall, the pace of new business has clearly moderated compared to the stronger readings seen toward the end of last year. When companies sense that the pipeline of future work isn’t filling up as quickly as before, they tend to become more cautious. And that caution quickly shows up in other parts of the survey.
“The survey is signalling annualized GDP growth of 1.5% for both December and January, and a worryingly subdued rate of new business growth across both manufacturing and services adds further to signs that first quarter growth could disappoint.”
– Chief Economist at S&P Global Market Intelligence
Employment: Barely Moving
Perhaps the most concerning part of the report is what it says about the labor market. After a period of very modest hiring in December, January brought more of the same: near-stagnant payroll numbers. Manufacturing jobs growth weakened to a six-month low, while services saw only a marginal increase.
Businesses repeatedly cited concerns over rising costs and softer sales growth as reasons for holding back on hiring. Many are also struggling to fill open positions, which has contributed to a build-up of backlogs—particularly in services. But rather than aggressively ramping up recruitment, companies seem content to muddle through with existing staff for now.
- Employment remained little changed overall
- Manufacturing hiring slowed to a six-month low
- Service sector added only a marginal number of jobs
- Capacity constraints led to the largest rise in backlogs since August
In my view, this is one of the clearest signals that confidence isn’t what it used to be. When companies hesitate to bring on new people even in a still-growing economy, it’s often because they don’t trust that the current level of activity will last.
Inflation Trends: Mixed Signals
Interestingly, the inflation picture is a bit more nuanced. Input cost inflation actually moderated from December’s seven-month high, falling to its lowest level since last April. Much of that relief came from the services sector, where price pressures eased noticeably.
Manufacturing, however, told a different story. Input prices in that sector rose at the fastest pace since September, with many firms pointing directly to tariffs as the main driver. Selling price inflation also remained elevated, especially for goods, meaning affordability concerns are still very much on the radar for both businesses and consumers.
It’s a classic case of divergent pressures: services cooling on the inflation front while goods-related costs continue to climb. How these two forces ultimately balance out will likely play a big role in shaping the inflation outlook for the coming months.
Business Confidence: Still Positive, But Slipping
Looking ahead, companies remain cautiously optimistic about the year to come. Expectations for future output stayed in positive territory, but they dipped slightly compared to previous months. Hopes for sustained demand growth were tempered by worries over the political environment, higher prices, and ongoing tariff-related uncertainty.
It’s not panic by any means—confidence is still above historical averages—but the direction of travel is worth noting. When optimism starts to fade even modestly, it often becomes a self-fulfilling prophecy as businesses pull back on investment and hiring.
What This Means for the Broader Economy
Tying it all together, the January flash PMIs paint a picture of an economy that is still expanding—just not at the pace many had hoped for. The implied GDP growth rate of around 1.5% annualized is respectable, but it’s a far cry from the stronger readings we saw in the second half of last year.
Perhaps the most interesting aspect is how synchronized the slowdown appears to be. It’s not just manufacturing feeling the pinch from global headwinds; services—usually more resilient—are also showing signs of moderation. That kind of broad-based softening is harder to dismiss as a temporary blip.
Of course, one month’s data doesn’t make a trend. But when you combine this report with other recent signals—slower consumer spending growth, persistent inflation concerns, and ongoing geopolitical uncertainty—it becomes harder to argue that the economy is firing on all cylinders.
Tariffs Remain a Key Wild Card
One theme that kept coming up in the survey comments was the impact of tariffs. Manufacturers in particular cited higher input costs directly linked to trade policy. Services companies were less affected, which helps explain why inflation pressures eased more noticeably in that sector.
As long as tariff uncertainty lingers, it’s likely to remain a drag on manufacturing activity and a source of upward pressure on goods prices. How policymakers navigate this issue in the coming months could have an outsized impact on the economic trajectory.
The Bottom Line
The January flash PMIs aren’t disastrous by any stretch—the US economy is still growing, after all. But they do confirm what some observers have suspected for a while now: the post-pandemic expansion has lost some of its momentum. With new orders softening, hiring on pause, and inflation pressures proving sticky in parts of the economy, the outlook for the first quarter of 2026 looks increasingly subdued.
Markets will be watching closely to see whether February’s data brings any signs of stabilization—or whether the cooling trend continues. For now, though, the message from the PMIs is clear: the expansion has cooled, and the next few months could be choppier than many had anticipated.
What do you think—temporary pause or the start of something more concerning? The data will keep telling the story in the weeks ahead.
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