The US manufacturing sector experienced a significant decline at the end of 2025, with industrial activity contracting for the tenth consecutive month in December, reaching its lowest level in 14 months. This decline was driven by a sharp drop in new orders and a gradual increase in production costs, reflecting the ongoing challenges facing the world's largest economy.
Worrying data for the Purchasing Managers' Index
Data released by the Institute for Supply Management (ISM) revealed that its manufacturing Purchasing Managers' Index (PMI) fell to 47.9 in the final month of 2025, down from 48.2 in November, marking its lowest level since October 2024. Economically, a reading below 50 indicates a contraction in activity, while a reading above 50 indicates expansion. The manufacturing sector is a key pillar of the US economy, representing approximately 10.1% of the overall economy.
Impact of tariffs and trade policies
The sector is directly suffering the consequences of protectionist trade policies, specifically the tariffs imposed by President Donald Trump on imports. These tariffs have led to higher costs for raw materials and production inputs, placing additional pressure on manufacturers already facing supply chain challenges. Experts indicate that the continuation of these policies without modification could erode the profit margins of industrial companies and reduce their competitiveness in global markets.
Variation in the performance of sub-sectors
Despite the overall bleak picture for the sector, data revealed varying performance across different industries. The electrical equipment and components sector and the computer and electronics products sector both achieved growth, benefiting from continued demand for technology. In contrast, traditional heavy industries such as chemicals, machinery, transport equipment, and diversified manufacturing experienced a clear contraction, reflecting weak investment and consumer demand in these areas.
Future prospects and economic impact
December's reading came in below economists' expectations, who polled by Reuters had predicted the index would remain steady at 48.4. The survey, conducted by the Institute for Supply Management, suggests a rapid recovery is unlikely in the near term, raising concerns about a potential manufacturing slump that could weigh on overall economic growth.
However, there remains a glimmer of hope, as economists and policymakers are counting on the tax cuts promised by the Trump administration to take effect this year. These fiscal measures are expected to stimulate investment and increase capital spending, which could help lift the manufacturing sector out of its current slump and put it back on a growth trajectory.
