Economic Data and Growth

In January, Philadelphia’s regional manufacturing activity rose to its highest level since September, with the index for general business activity jumping from -8.8 to 12.6. This month, 23.1% of firms reported increases in activity, while just 10.5% of firms noted decreases. The indexes for new orders and shipments both moved up, rising from 5.7 to 14.4 and from 3.2 to 9.5, respectively. Meanwhile, the employment index declined to 9.7 points as the average employee workweek shrunk 3.4 points to 9.1.

The prices paid index decreased from 49.3 to 46.9, its second consecutive monthly decline, while the prices received index rose from 26.0 to 27.8. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, indicators showing expectations for future growth declined for the second consecutive month but remained positive. After decreasing 8.0 points in December, expectations for future business activity fell 12.6 points to 25.5 in January. The drop came from a loss in the proportion of firms expecting an increase in activity (34.9%). At the same time, the number of firms anticipating a decrease in activity (9.3%) was down from 12.6% in December. The future new orders index slipped from 39.1 to 32.9, but the future shipments index edged up from 39.9 to 40.8. At the same time, the capital expenditures index grew from 29.1 to 30.3. The future prices paid and prices received indexes increased from 64.6 to 66.6 and from 57.2 to 61.8, respectively. Additionally, the index for future employment rose from 24.7 to 28.8.

In January, firms were asked to estimate changes in various costs over the past year and anticipate changes coming in 2026. Of those responses, firms said their costs for wages, health benefits and non-health benefits rose 5.3% during 2025. Looking forward, firms expect the average costs for these to climb 6.5% in 2026. Meanwhile, firms anticipate the increase in the cost of energy, other raw materials and intermediate goods to slow over the next 12 months. When asked about factors influencing their pricing decisions for their products, maintaining steady profit margins (77%), wages and labor costs (75%) and strength of demand as well as nonlabor costs (both 74%) were cited as most important to firms.

The Producer Price Index for final demand (also known as wholesale prices) rose 0.2% over the month in November, after prices inched up 0.1% in October. Over the year, producer prices moved up 3.0% in November, up from 2.8% in October. Meanwhile, prices for final demand excluding foods, energy and trade services increased 0.2% over the month in November after rising 0.7% in October. Prices for these goods advanced 3.5% from November 2024, the largest 12-month increase since March.

Within final demand, prices for services stayed the same in November after rising 0.3% in October. Meanwhile, prices for goods jumped 0.9%, the largest increase since February 2024. Within the final demand services index, prices for bundled wired telecommunications access services moved up 4.6%, while margins for health, beauty and optical goods retailing fell 4.3%. Within the final demand goods index, prices for final demand energy climbed 4.6%, accounting for over 80% of the November increase. The price for gasoline was the primary contributor of that increase, surging 10.5%, while prices for residual fuels declined 8.6%.

Processed goods for intermediate demand stepped up 0.6% in November, the largest increase since July. Nearly three-fourths of the November advance can be attributed to a 12.4% jump in the prices for diesel fuel. The indexes for gasoline, primary nonferrous metals, commercial electric power, utility natural gas and jet fuel also rose. On the other hand, the prices for sugar and confectionary products decreased 1.3%. Over the year, the index for processed goods for intermediate demand rose 3.6%.

Meanwhile, prices for unprocessed goods for intermediate demand advanced 0.4% in November, the first increase since July. The growth was led by a 1.4% rise in unprocessed energy materials, with the 10.8% gain in the index for natural gas being a major factor. At the same time, prices for unprocessed foodstuffs and feedstuffs declined 0.9%. Over the year, prices for unprocessed goods for intermediate demand inched up 0.1%.

In December, consumer prices increased 0.3% from November and 2.7% over the year, unchanged from the 2.7% annual rise in November. Core CPI, which excludes more volatile energy and food prices, rose 0.2% from November and 2.6% over the year, also unchanged from the 2.6% 12-month increase in November.

Energy costs advanced 2.3% over the year in December, after rising 4.2% year-over-year in November. Within the energy index, gasoline prices declined 3.4% over the year, while fuel oil prices jumped 7.4%. Meanwhile, electricity prices increased 6.7% year-over-year, and natural gas prices surged 10.8%.

In December, food prices grew 3.1% over the year, after increasing 2.6% year-over-year in November, while prices for food at home advanced 2.4%. Meanwhile, prices for food away from home climbed 4.1% from December 2024, up from the 3.7% year-over-year increase in November. Of the different food groups, beef and veal and coffee continue to rise at the fastest pace, soaring 16.4% and 19.8% over the year, respectively.

The shelter index grew 0.4% from November and 3.2% over the year, the greatest factor in the all-items monthly increase and ticking up from the 3.0% annual gain in November. Meanwhile, prices for used cars and trucks decreased 1.1% over the month but rose 1.6% over the year, while new vehicle prices stayed the same over the month and ticked up 0.3% from December 2024. Relatedly, prices for motor vehicle maintenance and repair jumped 5.4% year-over-year.

Although the headline inflation rate did not accelerate from November, it is still elevated from earlier last year. Federal Reserve officials cut their interest rate target at their prior three meetings, but markets anticipate that the Federal Open Market Committee will not lower its interest rate target at this month’s meeting. While risks to the Federal Reserve’s employment mandate remain elevated, so do risks to inflation, and those two risks may be coming into balance again.

Industrial production rose 0.4% in December, while manufacturing output increased 0.2% after moving up 0.4% in November. At 97.4% of its 2017 average, manufacturing production advanced 2.0% from December 2024. Capacity utilization for manufacturing was 75.6%, unchanged from November but up 1.1% over the past year. Capacity utilization remains 2.6 percentage points below its long-term average from 1972 to 2024.

In December, most major market groups posted gains. Consumer goods production grew 0.7%, while business equipment output increased 0.8%. The decline in production of consumer durables (down 0.7%) was led by home electronics’ output falling 1.4%, while the index for consumer nondurables rose 1.1%, experiencing gains in all but two of its categories. Among business equipment, the 1.7% gain in defense and space equipment more than offset a 0.2% loss in the index for information processing equipment. At the same time, the index for materials ticked up 0.2%, while the index for construction supplies inched down 0.3%, and the index for business supplies remained unchanged in December.

Durable goods manufacturing advanced 0.1% in December and 3.1% from the year prior. Monthly growth was greatest for primary metals (up 2.4%), while wood products posted the largest decline (down 2.3%). Meanwhile, led by a 1.8% gain in petroleum and coal products output, nondurable goods manufacturing increased 0.3% in December and 1.0% from December 2024.

Nonfarm payroll employment ticked up by 50,000 in December. Meanwhile, October and November’s job gains were revised downward by 76,000 to a loss of 173,000 jobs and a gain of 56,000 jobs, respectively. Following the government shutdown, employment is still down by 67,000 from September. The 12-month average stands at 49,000 job gains per month. On the other hand, the unemployment rate edged down 0.1 percentage point from November to 4.4% in December, while the labor force participation rate also ticked down 0.1 percentage point to 62.4%.

Manufacturing employment decreased by 8,000 in December, the eighth consecutive month of job losses, after slipping by 2,000 in November. On the other hand, the collective job losses in September and October of 14,000 were revised upward by 3,000 jobs to a decrease of 11,000 jobs. Manufacturing employment is down 68,000 over the year. Durable goods manufacturing employment edged down by 3,000 in December, while nondurable goods employment fell by 5,000. The most significant gain in manufacturing in December occurred in miscellaneous manufacturing, which added 1,800 jobs over the month. Meanwhile, the most significant loss occurred in plastics and rubber products manufacturing, which shed 4,900 jobs over the month.

The employment-population ratio inched up 0.1 percentage point from November to 59.7% in December but is down 0.2 percentage points from a year ago. Employed persons who are part-time workers for economic reasons declined by 146,000 from November to 5.34 million in December and are up from 4.36 million in December 2024. Native-born employment is down 656,000 from November but up 2,043,000 over the year. Meanwhile, foreign-born employment is up 310,000 over the month and 383,000 over the year. At the same time, the native-born unemployment rate is up 0.4 percentage points over the year to 4.1% in December, while the foreign-born unemployment rate is down 0.2 percentage points to 4.1%.

Average hourly earnings for all private nonfarm payroll employees rose 0.3%, or 12 cents, reaching $37.02. Over the past year, earnings have grown 3.8%. The average workweek for all employees edged down 0.1 hour to 34.2 hours and by 0.2 hours to 39.9 hours for manufacturing employees.

In October, the S&P Cotality Case-Shiller U.S. National Home Price NSA Index recorded a 1.4% annual gain, up slightly from 1.3% in September. The 10-City Composite saw an annual increase of 1.9%, down from 2.0% the previous month, while the 20-City Composite rose 1.3% year-over-year, down from 1.4%. Among the 20 cities, Chicago posted the highest annual gain at 5.8%, followed by New York at 5.0% and Cleveland at 4.1%. Tampa again recorded the lowest annual return, with prices falling 4.2%.

On a month-over-month basis, the U.S. National Index ticked down 0.2% before seasonal adjustment. At the same time, the 10-City and 20-City Composites both decreased in October, declining 0.2% and 0.3%, respectively.

High mortgage rates and inflation have begun to overwhelm home price resilience as affordability has slowed demand. Before seasonal adjustment, 16 of the 20 cities saw prices drop in October. The Midwest and Northeast markets continue to sustain growth as broader conditions across the country soften. Meanwhile, in addition to Tampa, the Sun Belt continued declining, including Phoenix (down 1.5%), Dallas (down 1.5%) and Miami (down 1.1%).

Following the weakest growth in more than two years in September, a new equilibrium has emerged within the housing market. Short-term momentum has stalled, and persistent affordability challenges have resulted in minimal price appreciation and declines in some regions.

In December, Texas factory activity contracted after rising the prior month. The production index plummeted 23.7 points to -3.2, dropping below the series average of 9.6. Furthermore, most other measures declined notably from November. The new orders index decreased 11.2 points to -6.4. Capacity utilization moved down 23.9 points to -4.5, while shipments plunged 25.7 points to -10.6.

Perceptions of manufacturing business conditions remained negative in December, with the general business conditions index inching down 0.5 points to -10.9. At the same time, the outlook worsened, with the company outlook index falling 5.6 points to -11.9. The uncertainty index weakened 15.7 points to 0, remaining far below the series average of 17.

Labor market indicators suggest a decline in both headcounts and the workweek in December, with the employment index stepping down 2.3 points to -1.1 and the hours worked index falling 17.4 points to -7.5. More than 13% of firms reported net layoffs, while a smaller percentage (12.3%) noted net hiring.

Price pressures were little changed, but wage pressures accelerated in December. The prices paid for raw materials index stepped up 0.7 points to 36. Meanwhile, the prices received for finished goods index decreased 2.6 points to 8.2. The wages and benefits index rose 6.4 points to 21.8, moving above the series average of 21.

The outlook for future manufacturing activity remained positive in December, with the future production index edging up 0.5 points to 34.2. Meanwhile, the future general business activity index ticked down 0.2 points to 10.8, while the future company outlook index inched up 0.3 points to 16.5.

The S&P Global Manufacturing PMI was 51.8 in December, down from the November reading of 52.2. New orders declined for the first time in a year. At the same time, exports fell for the seventh consecutive month, as tariffs continued to impact sales to key markets, especially Canada. Meanwhile, input and output prices rose in December, but at the slowest rate in 11 months. Despite the slowing pace of price increases, inflation remains elevated from a historical context in December.

Production rose over the month, allowing stocks of finished goods to rise for the fifth consecutive month. Nonetheless, output increased at a slower rate than November’s survey record due to the contraction in new orders. Furthermore, the gap between the growth of production and the drop in orders was the greatest since the height of the global financial crisis. If demand and export sales remain weak, the continuing rise in unsold stock likely will result in a decline in output in future months. Meanwhile, delivery times lengthened in December to their longest level in seven months due to difficulties receiving inputs as a result of supplier capacity constraints.

Uncertainty around tariffs continued to weigh on business confidence, with overall business confidence easing from November to the lowest level since April. Despite the uncertainty, expectations of lower interest rates and new investment plans kept business confidence positive. Firms expanded labor capacity in anticipation of strong sales next year. As a result, employment rose solidly for a fourth consecutive month in December.

In December, global manufacturing activity eased from 50.5 in November to 50.4. Output rose for the fifth consecutive month but at a slower pace than November, as new orders remained stable from the prior month. The stagnation in new work was due, in part, to the ongoing contraction in international trade, with new export orders declining for a ninth consecutive month. Staffing levels stayed the same, while backlogs of work decreased slightly. 

India, Vietnam, Greece and Pakistan had the highest PMI readings in December. On the other hand, Mexico, Germany, Japan, Brazil and Russia were some of the larger nations to register declines in activity. The increase in manufacturing output occurred across the consumer, intermediate and investment goods categories.

Meanwhile, both input and output price pressures picked up in December but remained below long-run averages. Forward-looking indicators were positive, with business optimism remaining at November’s five-month high and investment goods producers seeing positive gains after stalling recently.

Washington, D.C. – Last week, the National Association of Manufacturers released its quarterly Outlook Survey. The Q3 2025 Outlook Survey—the first to be administered after the passage of this year’s landmark tax legislation—shows markedly improved optimism among manufacturers. Manufacturers report increased optimism (65%) over the previous quarter (55.4%).

However, persistent uncertainty in familiar policy areas is edging up from the previous quarter.

• Trade uncertainty: 78.2% (up from 77.0%)
• Rising raw material costs: 68.1% (up from 66.1%)
• Increasing health care costs: 65.1% (up from 60.0%)

NAM President and CEO Jay Timmons remarked: “These results confirm what we’ve seen in the economic data—that the sector is still enormously challenged as manufacturing output took four months to recover from this spring’s dip, and optimism still falls below the survey’s historical average of 74%.”

“To supercharge the increase in optimism we’re starting to see, manufacturers need certainty across a full manufacturing strategy spanning sensible trade policy, permitting reform to unleash American energy dominance, modernized regulations and workforce investments,” Timmons said. “Put another way, so long as this uncertainty persists, manufacturers will not be able to tap fully into the strength of President Trump’s monumental and historic tax provisions, championed by our allies in the White House and Congress.”

NAM Chief Economist Victoria Bloom observed that “the third quarter optimism level aligns with August’s production data released by the Federal Reserve, which showed that manufacturing output was 100.3% of its 2017 average, barely above March’s level of 100.2%, taking four months to recover from April’s drop.”

“At the same time, manufacturers are projecting moderate growth over the next 12 months with production expected to rise 2.5% (up from 1.4% in Q2) and capital investments 1.0% (up from 0.3%),” Bloom said. “Costs are still expected to climb, but at a slightly slower pace than Q2, with raw material and input costs projected to increase 5.4% (down from 5.8%) and product prices up 3.7% (down from 4.3%). These findings reflect both the resilience of the sector and the real challenges still weighing on growth.”

The NAM releases these results to the public each quarter. Further information on the survey is available here.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.93 trillion to the U.S. economy annually and accounts for 53% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org