ISM: U.S. Manufacturing Activity Reaches Lowest Level in 2025

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Written by Danny Levin, Deputy Editor for IIR News (Sugar Land, Texas)

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Summary

The Institute of Supply Management's (ISM) Purchasing Managers Index, a leading indicator for the level of economic activity in U.S. manufacturing, reached its lowest figure for 2025 (and a 14-month low) as manufacturers continue to face challenges related to tariffs and other economic uncertainty.

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The ISM's Latest Purchasing Manager's Index

The ISM's Purchasing Manager's Index (PMI), which tracks 18 manufacturing sectors in the U.S., registered 47.9% in December, marking the lowest figure of the year and the lowest since October 2024's reading of 46.5%.

November, October and September's readings reached 48.2%, 48.7% and 49.1%, respectively. Any reading under 50% indicates contraction in the manufacturing economy; the PMI has been below 50% every month since October 2022, except for January and February of this year.

"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," said Susan Spence, chair of the ISM Manufacturing Business Survey Committee, in the latest summary of findings for the PMI survey. "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." Low inventories indicate customers need to replenish their stock, which often translates to increased production.

The Production Index is still in expansion but slipped 0.4%, likely due to last month's drop in the New Orders and Backlog of Orders indexes, Spence said.

Tariffs' Effect on U.S. Manufacturing Activity

Spence noted for every comment about new orders, 1.3 comments "indicated concern about near-term demand, driven by tariff costs and other uncertainties."

Meanwhile, the Backlog of Orders Index contracted for another month, dropping 1.8% month-over-month, reaching 45.8%. Spence said this suggests that trade-related and geopolitical factors continue, and not much improvement is expected until those influences diminish.

The Prices Index continues to indicate raw materials prices increased for the 15th straight month. This "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." About 26% of respondents reported higher prices in December, down only 0.8% from November.

Those respondents had much to say about how tariffs and the overall economic landscape continues to weigh on their business. One from Machinery said: "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."

Another from Computer & Electronic Products said: "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."

Meanwhile, one from Electrical Equipment, Appliances & Components said: "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 remains to be seen whether the recent trade agreement between the U.S. and China--with main components being the U.S. pausing some of the reciprocal tariffs and China suspending export controls on rare earths--can turn things around. Neither side has announced a formal deal.

U.S. Manufacturing Projects Under Construction

Despite the tariffs and any economic uncertainty, data from Industrial Info's Global Market Intelligence (GMI) Project Database shows about $500 billion worth of Industrial Manufacturing Industry projects are under construction across the U.S.

About 35% of the spending is attributed to the buildout of data centers.

This includes two expansion projects in the Greater Houston area's Harris County, both of which are expected to wrap up at the end of 2026, from private developers: ServerFarm LLC's expansion of its two-building data center (CTX1 and CTX2), and TRG Datacenters' (Spring, Texas) second data center building (HOU2) in Spring. Both campuses serve enterprise, cloud and artificial intelligence (AI) applications.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Industrial Manufacturing Project Database can view the related project reports.

Key Takeaways

• The ISM's Manufacturing PMI notes economic activity in U.S. manufacturing reached its lowest level of the year and the lowest level since October 2024.
• Tariffs and economic uncertainty remain a concern for manufacturers.
• The indicators for production and inventories pulled back.
• Some demand indicators showed improvement, but further gains are needed to show long-term progress.

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).