Overview of the December 2025 ISM Manufacturing PMI
The December 2025 ISM Manufacturing PMI® stands at 47.9, signaling continued contraction in the U.S. manufacturing sector but with some pockets of improvement. The index’s reading suggests a slower pace of expansion for overall manufacturing activity compared with a neutral 50 threshold, continuing a trend that has weighed on economists and policymakers as the sector grapples with demand and supply dynamics heading into the new year.
What’s Contracting and What’s Expanding
Within the report, new orders are contracting, indicating softer demand for manufactured goods. This trend can point to caution among businesses and potential inventory adjustments ahead. In contrast, production is expanding, suggesting factories are operating at higher utilization or implementing efficiency gains to meet existing demand and manage costs.
Employment remains a headwind, contracting as firms slow hiring in response to demand trends and to preserve margins. Labor market softness in manufacturing can reverberate through regional economies that rely on factory activity and related services.
Supply Chain and Inventory Dynamics
Supplier deliveries are reported as slower, reflecting ongoing logistical challenges and tighter supplier capacity. At the same time, raw materials inventories are contracting, which can signal tighter upstream supply for manufacturers or a drawdown in buffers as firms respond to demand signals.
Customers’ inventories are considered too low, a condition that could encourage production in the near term to rebuild stock levels and support demand fulfillment. This combination of tight supplier delivery times and thinner customer inventories often drives manufacturers to adjust production plans and operational pace.
Prices, Exports, and Imports
Prices for inputs or finished goods have shown no notable change, indicating price stability or a pause in inflationary pressures within the sector. This lack of price escalation can be a relief to manufacturers facing rising input costs elsewhere, though it may also reflect cooling demand.
Exports and imports contract, underscoring softer global demand and cross-border trade activity in the period. A shrinking trade footprint can influence domestic factory utilization and supply chain strategies, especially for export-oriented manufacturers or those relying on imported components.
The Broader Economic Context
ISM’s December PMI adds nuance to the broader economic picture, where manufacturing intersects with consumer behavior, monetary policy, and global supply chains. A stabilizing production pulse alongside weakening new orders suggests manufacturers are trying to balance capacity with demand, while inventory and trade shifts highlight the ongoing recalibration of supply chains after recent disruptions.
What This Means for Businesses and Policymakers
For manufacturers, the message is mixed: maintain production efficiency and manage labor costs while preparing for potential demand volatility. Inventory strategies may need adjustment as customer stocking patterns evolve and international trade receipts fluctuate. For policymakers and economists, the PMI offers a read on manufacturing health, potentially influencing decisions on interest rates, incentives for industrial investment, or strategies to stabilize supply chains in the coming quarters.
Looking Ahead
As firms digest December’s PMI readings, attention will turn to early indicators of 2026 momentum. If production sustains gains while new orders remain pressured, manufacturers might seek productivity-enhancing investments, automation, or new markets to offset softer demand. Monitoring supplier deliveries, inventories, and trade activity will remain crucial for forecasting factory outputs and regional economic trends.
