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The U.S. manufacturing sector couldn’t catch a break in 2025, ultimately wrapping up December on its weakest footing of the year. Activity remained uneven across the sector, with most industries still contracting and only limited areas showing signs of stability as the year came to a close.
The ISM Manufacturing PMI Report has been tracking the sector’s declining numbers over the last 10 months and says December followed a similar trajectory. The Manufacturing PMI registered 47.9% in December, a 0.3-percentage point decrease compared to the reading of 48.2% in November and the lowest reading of 2025. A Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.
“In December, U.S. manufacturing activity contracted at a faster rate, with pullbacks in the production and inventories indexes leading to the 0.3-percentage point decrease of the Manufacturing PMI,” says Susan Spence, chair of ISM’s manufacturing business survey committee.
“Those two subindexes increased in November, so their contraction [in December] continues the short-term ‘bubble’ of improvement indicative in the last several months of PMI data,” she adds, “and a hallmark of recent economic uncertainty in manufacturing.”
Breaking Down the Indexes
Of the six largest manufacturing industries, Computer & Electronic products was the only one that expanded in December. Overall, ISM says the production index is still in expansion but that it slipped 0.4 percentage point in December, likely due to November’s drop in the new orders and backlog of orders indexes. The employment index contracted at a slower pace, it adds, with 63% of panelists (interviewed for the report) indicating that managing head counts is still the norm at their companies, as opposed to hiring.
Inputs that include supplier deliveries, inventories, prices and imports were mixed in December, with ISM reporting that the supplier deliveries index indicated slower deliveries; the inventories and imports indexes contracted, and the prices index posted the same reading as November.
"Looking at the manufacturing economy, 85% of the sector’s gross domestic product (GDP) contracted in December, compared to 58% in November, and the percentage of manufacturing GDP in strong contraction increased to 43%, compared to 39% in November,” ISM states. “The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness.”
What the Companies Have to Say
ISM’s backlog of orders index registered 45.8%, an increase of 1.8 percentage points compared to the November reading of 44.0%, indicating order backlogs contracted for the 39th consecutive month after a 27-month period of expansion that ended in September 2022. Of the six largest manufacturing industries, just Computer & Electronic Products reported expansion in order backlogs in December.
"Another month of contraction in the backlog orders index suggests that trade-related and geopolitical factors persist,” Spence points out. “Not much improvement is expected until those influences diminish.”
Manufacturing executives responding to the survey shared their views on the situation, what’s causing it and how it’s impacting their individual organizations. “Winding up the year with mixed results. It has not been a great year,” one chemical products manufacturer said. “We have had some success holding the line on costs; however, real consumer spending is down and tariffs are ultimately to blame. I hope for some return to free trade, which is what consumers have ‘voted for’ with their spending.”
A computer and electronic manufacturer noted that while some of the tariff noise has quieted, input costs remain high. “Our costs have increased, so we have increased prices for our customers to compensate. Margins have deteriorated, as full pass through (of cost increases) is not possible."
On the transportation front, one equipment maker says that while customers are placing orders, many are buying 20%-30% less than historical buying patterns. “Some large fleets are still completely on hold for 2026, with zero capital expenditures money available to fleet budgets,” the respondent continues. “The general mood of the industry is that the first half of 2026 will be another bust, and we’re now hoping things pick up in the second half, even as the North American truck fleet continues to age.”
