ISM report: December manufacturing activity contracts
Economic activity in the manufacturing sector contracted in December for the 10th consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest ISM Manufacturing PMI Report.
The report was issued by Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
“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. The overall economy contin-ued in expansion for the 68th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted for a fourth straight month in December following one month of growth; the figure of 47.7% is 0.3 percentage point higher than the 47.4% recorded in November. The December reading of the Production Index (51%) is 0.4 percentage point lower than November’s figure of 51.4%. The Prices Index remained in expansion (or ‘increasing’ territory), registering 58.5%, the same as November’s reading. The Backlog of Orders Index registered 45.8%, up 1.8 percentage points compared to the 44% recorded in November. The Employment Index registered 44.9%, up 0.9 percentage point from November’s figure of 44%.
“The Supplier Deliveries Index indicated slower delivery performance after one month in ‘faster’ territory. The reading of 50.8% is up 1.5 percentage points from the 49.3% recorded in November. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 45.2%, down 3.7 percentage points compared to November’s reading of 48.9%.
“The New Export Orders Index reading of 46.8% is 0.6 percentage point higher than the reading of 46.2% registered in November. The Imports Index registered 44.6%, 4.3 percentage points lower than November’s reading of 48.9%.”
Spence continues, “In December, U.S. manufacturing activity contracted at a faster rate, with pull-backs in the Production and Inventories indexes leading to the 0.3-percentage point decrease of the Manufacturing PMI. Those two subindexes increased in November, so their contraction this month continues the short-term “bubble” of improvement indicative in the last several months of PMI data — and a hallmark of recent economic uncertainty in manufacturing.
“Although the demand indicators are still in contraction, improvement in three indexes (New Orders, Backlog of Orders and New Export Orders) and the Customers’ Inventories Index remaining in ‘too low’ territory (and at an accelerated rate) are positive signs for December, but several consecutive months of gains in these indicators are necessary for a longer-term recovery. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.
“Regarding output, the Production Index is still in expansion but slipped 0.4 percentage point, likely due to last month’s drop in the New Orders and Backlog of Orders indexes. The Employment Index contracted at a slower pace, with 63% of panelists indicating that managing head counts is still the norm at their companies, as opposed to hiring.
“Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index indicating slower deliveries, the Inventories and Imports indexes contracting strongly, and the Prices Index with the same reading as in November.
“Looking at the manufacturing economy, 85% of the sector’s gross domestic product (GDP) contract-ed in December, compared to 58% in November, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45% or lower) increased to 43%, compared to 39% in November. The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, only Computer & Electronic Products expanded in December,” says Spence.
The two manufacturing industries reporting growth in December are: Electrical Equipment, Appliances & Components; and Computer & Electronic Products. The 15 industries reporting contraction in De-cember — in the following order — are: Apparel, Leather & Allied Products; Wood Products; Textile Mills; Paper Products; Chemical Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Petroleum & Coal Products; Primary Metals; Miscellaneous Manufacturing; Plastics & Rub-ber Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; and Transportation Equipment.
WHAT RESPONDENTS ARE SAYING
- “Winding up the year with mixed results. It has not been a great year. 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.” [Chemical Products]
- “Trough conditions continue: depressed business activity, some seasonal but largely impacted by customer issues due to interest rates, tariffs, low oil commodity pricing and limited housing starts.” [Machinery]
- “Things are quieter regarding tariffs, but prices for all products remain higher. 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.” [Computer & Electronic Products]
- “Things are not improving in the transportation equipment market. Many customers are order-ing for 2026, but those orders are 20% to 30% below their historical buying patterns. Some large fleets are still completely on hold for 2026, with zero capital expenditures money available to fleet budgets. Truck rental utilization, which is a good benchmark for the health of the economy, is still below historically stable levels. 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.” [Transportation Equipment]
- “In the current environment, our company is struggling with customer orders and financially overall. Our senior leaders are struggling to focus our business and get the company on track with quality products. In November, layoffs impacted about 9% of our workforce, affecting all locations in the U.S. and Europe.” [Machinery]
- “Orders continue to drop for most of our businesses. Many plants are not running near full capacity. Make to order being utilized where possible.” [Chemical Products]
- “Order levels have continued to decline: We had a bad October, an awful November and a dismal December. January and February don’t look too good, as bookings are down 25% compared to the first two months of 2025.” [Fabricated Metal Products]
- “Morale is very low across manufacturing in general. The cost of living is very high, and com-ponent costs are increasing with folks citing tariffs and other price increases. It’s cold in our area of the country, absenteeism is worse around the holidays, and sales were lower than we expected for November. So, things look a bit bleak overall.” [Electrical Equipment, Appliances & Components]
- “Global logistics remains sensitive to geopolitical shifts. Tariffs are influencing equipment pric-ing and procurement strategies. Large-scale data center programs are absorbing and reducing availability of resources for other sectors.” [Food, Beverage & Tobacco Products]
- “2025 revenue was down 17% due to tariffs. The lost revenue has inhibited our ability to offer bonuses to employees or create and hire for new positions.” [Miscellaneous Manufacturing]
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Applied Industrial Technologies. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
