December ISM Data Highlights Ongoing Manufacturing Strain and Rising Input Costs

In December, the U.S. manufacturing sector contracted for the 10th consecutive month and at a faster pace than the prior month, with the ISM Manufacturing^® PMI decreasing to 47.9% from 48.2% in November. Although the demand indicators remain in contraction territory, the New Orders, New Export Orders and Backlog of Orders Indexes improved in December, rising to 47.7%, 46.8% and 45.8%, respectively. Meanwhile, the Customers’ Inventories Index contracted at a faster rate into “too low” territory, which is also a positive sign for future production. Meanwhile, the Production Index expanded at a slightly slower pace in December, decreasing from 51.4% to 51.0%.

The New Orders Index contracted for the fourth consecutive month but at a slightly slower rate, rising 0.3 percentage points from November. The index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022. Of the six-largest manufacturing sectors, two—computer and electronic products; and electrical equipment, appliances and components—reported an increase in new orders. Respondents continued to note concern about near-term demand, primarily driven by tariff costs and uncertainty.

The New Export Orders Index contracted for the 10th consecutive month but at a slightly slower pace, 0.6 percentage points higher than November. Respondents continue to note dampened international demand amid ongoing trade tensions and policy uncertainty. Meanwhile, the Imports Index contracted for the ninth consecutive month and at a faster rate, down 4.3 percentage points to 44.6% in December. Imports continued to contract as a result of tariff pricing and weaker demand compared to prior months.

The Employment Index contracted for the 11th consecutive month but at a slightly slower pace than the prior month, up 0.9 percentage points from November to 44.9%. Of the six-largest manufacturing sectors, two—transportation equipment and machinery—reported increased employment. Companies continued to focus on layoffs and attrition to restrict headcounts due to uncertainty around near- to mid-term demand. For every comment on hiring, three respondents noted reduced headcounts.

The Prices Index remained the same from November at 58.5%, indicating raw materials prices grew for the 15th straight month in December and at the same pace as the prior month. Of the six-largest manufacturing sectors, four—machinery; computer and electronic products; transportation equipment; and food, beverage and tobacco products—reported increased prices. The increase continues to be driven by higher steel and aluminum prices impacting the entire supply chain, as well as the tariffs applied to most imported goods. Roughly 26.4% of companies reported paying higher prices, down from 27.2% in November but still up from 21% in January 2025.