Supply Chain Data Signals Stagflation Risks for U.S. Economy as Cost Pressures Mount

In January 2026, key supply chain indicators point to a rising risk of stagflation in the U.S. economy, characterized by sluggish growth and persistent inflationary pressures. The ISM Manufacturing Purchasing Managers' Index (PMI), a critical leading indicator, registered 48.2% in November 2025, remaining in contraction territory for the ninth consecutive month and signaling weak economic momentum. Conversely, both the ISM Manufacturing and Services Price Paid Indices stayed elevated at 58.5% and 65.4% respectively, indicating rapidly rising input costs for businesses.

Data shows prices for intermediate demand goods in the supply chain rose 3.8% year-over-year, nearly double the Federal Reserve's inflation target. Critically, only about 34% of firms have passed these increased costs to consumers, suggesting significant pent-up inflationary pressure within the supply chain that may soon reach the consumer level. This squeeze is partly attributed to tariff-induced uncertainties and costs, with companies absorbing expenses or seeking alternative suppliers. This combination of soft growth and latent inflation is narrowing the policy options for the Federal Reserve, posing a substantial challenge to the economic outlook for 2026.