US Manufacturing Activity Remained in Contraction in December

Economic activity in the US manufacturing sector contracted in December for the 10th consecutive month, with pullbacks in the Production and Inventories indices leading to a 0.3 percentage point decrease, per the latest ISM Manufacturing PMI Report. The December Manufacturing PMI registered 47.9 percent, a 0.3 percentage point decrease compared to the November reading and the lowest reading of 2025.

Demand indicators remain in contraction, although slight improvement in three associated indices (New Orders, Backlog of Orders, and New Export Orders) and the Customers’ Inventories Index remaining in “too low” territory are considered positive signs. The New Orders Index contracted for a fourth straight month in December, although registering 0.3 percentage point higher than November. The Backlog of Orders Index registered 45.8 percent, up 1.8 percentage points compared to the 44 percent recorded in November. The New Export Orders Index reading of 46.8 percent is 0.6 percentage point higher than the reading of 46.2 percent registered in November.

Regarding output, the Production Index is still in expansion but slipped by 0.4 percentage point, likely due to last month’s drop in the New Orders and Backlog of Orders indices.

Inputs, defined as supplier deliveries, inventories, prices, and imports, were mixed, with the Supplier Deliveries Index indicating slower deliveries after one month in faster territory. The Inventories Index registered 45.2 percent, down 3.7 percentage points compared to November’s reading. The Imports Index registered 44.6 percent, 4.3 percentage points lower than November’s reading, while the Prices Index remained in expansion territory but was static at 58.5 percent.

The Employment Index registered 44.9 percent, up 0.9 percentage point from November’s figure of 44 percent, with 63 percent of panelists indicating that managing head counts is still the norm at their companies as opposed to hiring.

Eighty-five percent of the sector’s gross domestic product (GDP) contracted in December, compared to 58 percent in November, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45 percent or lower) increased to 43 percent compared to 39 percent in November. Of the six largest manufacturing industries, only Computer & Electronic Products expanded in December.

The overall ratio of positive comments by panelists compared to negative stood at 1:3.6, with most respondents continuing to identify tariff impacts as detrimental to their current business and prospects for the first half of next year.

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