US Manufacturing Sector: Slower Improvement in December 2025 Amid Weakening Demand

The latest S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) data for December 2025 indicates a continued, though moderated, improvement in operating conditions across the US manufacturing sector. The headline PMI registered 51.8, down from 52.2 in November, marking the softest expansion in the current five-month growth sequence.

While the sector remains in expansion territory (above the 50 no-change mark), the slowdown highlights emerging challenges, particularly on the demand side. Manufacturers are navigating a complex landscape shaped by softening new orders, persistent tariff-related pressures, and elevated costs—factors that warrant close monitoring as we enter 2026.

Key Highlights from the December Report

• New Orders Contract for the First Time in a Year New order intakes declined mildly in December—the first contraction in exactly 12 months. Export sales continued their downward trend, falling for the seventh consecutive month. Survey respondents frequently cited tariffs as a drag on international demand, especially exports to Canada.

• Output Growth Remains Solid but Softens Production increased, supporting a fifth straight month of finished goods inventory accumulation (though at a slower pace than November's record high). Despite weaker demand, output gains were sufficient to maintain positive momentum, albeit at the softest rate in three months.

• Tariffs Drive Elevated Input Costs Input price inflation, while easing to an 11-month low, remained historically high. Vendors continued to pass on higher charges, largely attributed to tariffs. Output prices (selling charges) also rose at their slowest pace since early 2025 but stayed well above long-term averages.

• Employment Strengthens A bright spot: Job creation accelerated to the strongest level since August 2025. Firms reported filling vacancies in anticipation of improved conditions in 2026, contributing to a fourth consecutive decline in backlogs of work.

• Supplier Delivery Times Lengthen Lead times worsened markedly—the most in seven months—due to supplier capacity constraints.

• Business Confidence Positive but Tempered Manufacturers maintained an upbeat outlook for 2026, linked to expectations of lower interest rates, business expansion plans, and investment. However, confidence eased from November amid concerns over replacing depleting order books and ongoing trade policy uncertainty.

Implications for Manufacturers in 2026

The December data paints a picture of resilience amid headwinds. Output and employment trends provide grounds for cautious optimism, suggesting many firms are positioning themselves for a potential rebound. However, the renewed contraction in new orders and persistent export weakness signal that demand recovery may be fragile.

Tariffs remain a dominant theme, simultaneously pressuring costs and international sales while contributing to supply chain frictions. As input buying stalled and pre-production inventories were built (partly as a hedge against further price rises), companies appear to be adopting a defensive stance.

At Gain Consulting, we advise clients to focus on:

• Cost Management and Pricing Strategy: With inflation still elevated, refining pass-through mechanisms and exploring alternative suppliers can help mitigate margin pressure.

• Demand Forecasting and Inventory Optimization: Balancing stock buildup with softening orders requires agile planning.

• Workforce Planning: Sustained hiring momentum is positive, but aligning talent acquisition with expected 2026 growth will be key.

• Trade Policy Monitoring: Ongoing uncertainty around tariffs underscores the value of scenario planning and diversification of export markets.

Overall, the US manufacturing sector closed 2025 on a growth footing, but the slower pace of improvement in December serves as a reminder that recovery is not yet entrenched. We expect moderated expansion in early 2026, supported by potential monetary easing, though downside risks from trade frictions persist.

Gain Consulting specializes in helping manufacturers navigate economic cycles through data-driven strategy, operational excellence, and risk management.

Contact us to discuss how these trends impact your business.

Source: S&P Global US Manufacturing PMI®, December 2025 final data released January 2026.