U.S. manufacturing activity decreased to its lowest point of 2025 last month, affected by continued tariff uncertainty and weak demand, according to the Institute for Supply Management’s latest Purchasing Managers’ Index.
ISM’s index registered 47.9% in December, down 0.3 percentage points compared with November. A PMI index below 50% shows an industry in contraction.
Despite improvements in three of the four main demand areas — including new orders, backlog of orders and new export orders — the indexes continued to be in contraction as they have been for months. Meanwhile, production slipped 0.4 percentage points, but was in expansion for the second month in a row.
Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said on a call with reporters Monday that the demand improvements are good, but the question remains if this could be the start of a turnaround or “just another blip.” She also noted that production expansion is likely in a “bubble” following four months of new orders in contraction.
“When new orders start turning around and expand for more than a month at a time — one, two, three, four, five months — then you’re going to see it flow to production and backlog, and then everything should follow,” Spence said.
Last month, new orders expanded in two of the 18 manufacturing sectors that ISM tracks, and only one of them was in computer and electronic products, which has seen major growth last year driven by data center buildouts to accommodate artificial intelligence demand.
Surveyed panelists cited tariffs as the biggest issue for them last month. Executive participants reported softer international orders as uncertainty around U.S. economic policy continues, Spence said, citing a ratio of 1.5 negative comments for every positive one regarding export orders.
Separately, employment contracted at a slower rate, with a majority of panelists saying that their companies are managing head counts instead of hiring. Additionally, supplier deliveries are slower compared to November and customer inventories are in the “too low” category, which can be a positive indicator for future production.
A mix of staff reductions, a lack of backfilling and continued price increases signals “that we’re still in a struggling economy,” Spence said. Compared to the overall economy, which has grown steadily every month since April 2020, the manufacturing sector has contracted for most of 2025.
Of the big six sectors that PMI follows, Spence said the computer and electronics products category expanded for half of the year, while other areas like transportation equipment and chemical products contracted most months. Meanwhile, petroleum and coal products expanded for the first nine months of the year and declined in the last three, she added.
“We’ll see what happens with the latest news out of Venezuela,” said Spence, who oversaw sourcing and procurement at FedEx for 10 years. President Donald Trump’s military operation in the South American country could shock U.S. and global oil prices.
Currently, companies like Chevron and ConocoPhillips are monitoring the situation and say it’s too early to speculate on future business activities or investments, News Nation reported. Chevron has infrastructure and workforces in Venezuela, while ConocoPhillips does not.
“It depends on what the plan is and if the country can come roaring back from an … infrastructure issue,” Spence said.
S&P’s December manufacturing PMI report provided a similar picture for the month as new orders fell for the first time over the past year and international sales continued to decline, due in part to tariffs. On the brighter side, the credit rating agency saw employment growth for most of the year and job creation was its most pronounced since August.
Although manufacturers ramped up production in December, prospects for the start of 2026 are “looking less rosy,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
“Factories are continuing to produce goods despite suffering a drop in orders,” he said, adding that the gap between production and orders is the widest it has been since the height of the 2008 global financial crisis.
“Unless demand improves, current factory production levels are clearly unsustainable,” Williamson said.
