ISM: December marks 10th month of contraction for manufacturing

Readings greater than 50% demonstrate growth in the manufacturing economy while readings below 50% suggest contraction. However, ISM notes that for the Supplier Delivery Index, an inverse relationship is at play. Numbers greater than 50 represent fewer deliveries made.  

Key indicators evaluated by Susan Spence, chair of the ISM Manufacturing Business Survey Committee, to prepare the report showed that while the overall US economy is slowly growing, the manufacturing sector is quickly contracting.  

Key indicator assessments 

In December, several key indicator indexes reported contraction. Compared to the rate of change in November, New Orders, Backlog of Orders, Employment, and New Export Orders reported easing. Meanwhile, Imports, Inventories, and Customer Inventories logged worsening contraction in December. The Supplier Delivery Index was up 1.5% in December (50.8) compared to November (49.3), signaling fewer deliveries were made.  

Simultaneously, the Production Index grew at a slower rate compared to the previous month, moving from 51.4 to 51 in December. Prices continued to grow at the same pace, holding at 58.5 from November to December.  

Electrical Equipment in the Appliances and Components sector and the Computer and Electronic Product sector were the two manufacturing industries that showed growth in December.  

Fifteen other manufacturing industries reported contraction for the month.  

“Looking at the manufacturing economy, 85% of the sector’s gross domestic product (GDP) contracted in December, compared to 58% in November,” Spence said.  

She added, “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.” 

Market commentary 

Manufacturing executives noted price increases and overall bearish market conditions in December. Many of the executives are still assessing the impact of tariffs on their businesses.  

“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,” said a chemical products manufacturer. “I hope for some return to free trade, which is what consumers have ‘voted for’ with their spending.”

A transportation equipment manufacturing executive noted lack of available capital for fleet updates.

“Things are not improving in the transportation equipment market. Many customers are ordering for 2026, but those orders are 20-30% below their historical buying patterns,” the executive said.  

The executive continued, “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.”

Finally, the executive concluded, “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.” 

Meanwhile, an executive in the fabrication sector stated, “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.” 

And one manufacturer from ISM’s miscellaneous industries said plainly, “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.”