Januaary 5, 2026
The Institute for Supply Management’s index of conditions in the manufacturing sector declined 0.3 point in December to 47.9 after having declined 0.5 point in November. This index was above the break-even level of 50.0 in February but fell below that threshold in March as manufacturers try to figure out how to adjust to the tariffs and it has remained there since. A level of 47.9 is associated with a GDP increase of 1.6%. This index has been between 47.0-49.0 for the past two years. Thus, the December level suggests that the manufacturing is continuing to decline slowly.
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for December will be released on Wednesday, January 7..
The Institute for Supply Management Chair for the Survey Committee Susan Spence said, “In December, U.S. manufacturing activity contracted at a faster rate, with pullbacks in the Production and Inventories indexes leading to the 0.3-percentage point decrease of the Manufacturing PMI®. Those two subindexes increased in November, so their contraction this month continues the short-term “bubble” of improvement indicative in the last several months of PMI® data — and a hallmark of recent economic uncertainty in manufacturing.”
“Although the demand indicators are still in contraction, improvement in three indexes (New Orders, Backlog of Orders and New Export Orders) and the Customers’ Inventories Index remaining in ‘too low’ territory (and at an accelerated rate) are positive signs for December, but several consecutive months of gains in these indicators are necessary for a longer-term recovery. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.
“Regarding output, the Production Index is still in expansion but slipped 0.4 percentage point, likely due to last month’s drop in the New Orders and Backlog of Orders indexes. The Employment Index contracted at a slower pace, with 63 percent of panelists indicating that managing head counts is still the norm at their companies, as opposed to hiring.
“Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index indicating slower deliveries, the Inventories and Imports indexes contracting strongly, and the Prices Index with the same reading as in November.
Comments from respondents include the following:
- “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. I hope for some return to free trade, which is what consumers have ‘voted for’ with their spending.” [Chemical Products]
- “Trough conditions continue: depressed business activity, some seasonal but largely impacted by customer issues due to interest rates, tariffs, low oil commodity pricing and limited housing starts.” [Machinery]
- “Things are quieter regarding tariffs, but prices for all products remain higher. Our costs have increased, so we have increased prices for our customers to compensate. Margins have deteriorated, as full pass through (of cost increases) is not possible.” [Computer & Electronic Products]
- “Things are not improving in the transportation equipment market. Many customers are ordering for 2026, but those orders are 20 percent to 30 percent below their historical buying patterns. 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. 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.” [Transportation Equipment]
- “In the current environment, our company is struggling with customer orders and financially overall. Our senior leaders are struggling to focus our business and get the company on track with quality products. In November, layoffs impacted about 9 percent of our workforce, affecting all locations in the U.S. and Europe.” [Machinery]
- “Orders continue to drop for most of our businesses. Many plants are not running near full capacity. Make to order being utilized where possible.” [Chemical Products]
- “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 percent compared to the first two months of 2025.” [Fabricated Metal Products]
- “Morale is very low across manufacturing in general. The cost of living is very high, and component costs are increasing with folks citing tariffs and other price increases. It’s cold in our area of the country, absenteeism is worse around the holidays, and sales were lower than we expected for November. So, things look a bit bleak overall.” [Electrical Equipment, Appliances & Components]
- “Global logistics remains sensitive to geopolitical shifts. Tariffs are influencing equipment pricing and procurement strategies. Large-scale data center programs are absorbing and reducing availability of resources for other sectors.” [Food, Beverage & Tobacco Products]
- “2025 revenue was down 17 percent due to tariffs. The lost revenue has inhibited our ability to offer bonuses to employees or create and hire for new positions.” [Miscellaneous Manufacturing]
It is striking to us that many of these comments included some discussion of tariffs and the impact these manufacturers were seeing in their industry. Everybody is nervous and trying to figure out how to adapt their business to this new environment. There are also a lot of references to generally tough conditions in the manufacturing sector.
The orders component rose 0.3 point in December to 47.7 after having fallen 2.0 points in November. This index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. . “Of the six largest manufacturing industries, one (Computer & Electronic Products) reported increased new orders. For every positive panelist comment about new orders, 1.3 comments indicated concern about near-term demand, driven by tariff costs and other uncertainties,” says Spence.
The production component fell 0.4 point in December to 51.0 after having riasing 3.2 points in November. “Of the six largest manufacturing industries, two (Computer & Electronic Products; and Transportation Equipment) reported increased production. Panelists had a 1-to-1 ratio of positive to negative comments regarding output,” says Spence.
The delivery performance of suppliers to manufacturing organizations rose 1.5 points in December to 50.8 after having fallen 4.9 points in November. “The Supplier Deliveries Index registered 50.8 percent, a 1.5-percentage point increase compared to the reading of 49.3 percent reported in November. Of the six big industries, three (Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products) reported slower supplier deliveries,” says Spence. A reading above 50 indicates slower deliveries which presumablly means that the economy in beginning to accelerate. A reading below 50 indicates faster deliveries and is associated with slower growth in the economy. Right now it has been hovering between 50-55 for the past year.
The employment index rtose 0.9 point in December to 44.9 after having fallen 2.0 points in November. “The index posted its 11th consecutive month of contraction after expanding in January, with seven straight months of contraction before that. Since May 2022, the Employment Index has contracted in 37 of 44 months. Of the six big manufacturing industries, two (Transportation Equipment; and Machinery) reported higher levels of employment in December. For every comment on hiring, there were three on reducing head counts. Companies continued to focus on accelerating staff reductions due to uncertain near- to mid-term demand. The main head-count management strategies remain layoffs and not filling open positions,” says Spence.
The backlog of orders rfose 1.8 points in December to 45.8 after having declined 3.9 points in November. “Another month of contraction in the Backlog of Orders Index suggests that trade-related and geopolitical factors persist. Not much improvement is expected until those influences diminish,” says Spence
Customer inventory levels declined 1.4 points in Dedember to 43.3 after having climbed 0.8 point in November. Customers’ Inventories Index remained in “too low” territory in December, with a reading of 43.3 percent, a decrease of 1.4 percentage points compared to the reading of 44.7 percent in November”, says Spence.
With a increase in the orders index and a small decline in customer inventories the ratio of orders to inventories was unchanged in December at 1.1 after having been unchanged in November. The 1.1 level for this index suggests that production should be relatively unchanged in the months ahead.
The prices paid component was unchanged in December at 58.5 after having risen 0.5 point in November. . “The Prices Index reading continues to be driven by increases in steel and aluminum prices that impact the entire value chain, as well as tariffs applied to many imported goods. Higher prices were reported by 26.4 percent of respondents in December, down just 0.8 percentage point from 27.2 percent in November and compared to 49.2 percent in April, which was the highest level since June 2022 (65.2 percent),”
GDP increase df 4.3% in the third quarter and is expected to climb 2.8% in the fourth quarter. We are also looking for GDP growth of 2.8% in 2026.
Stephen Slifer
NumberNomics
Charleston, S.C.
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