U.S. manufacturing fell deeper into recession territory at the beginning of December, marking the sixth consecutive month of contraction in America’s goods-producing sector as factory output fell to its lowest level in 55 months while input-cost inflation jumped to the highest in just more than two years, according to S&P Global.
America’s factory activity, as measured by S&P Global’s manufacturing index, fell from 49.7 in November to 48.3 in December. This marked a downside surprise as forecasters expected a slight improvement rather than a deepening slump. December marked a three-month low for manufacturing activity and the sixth consecutive month of below-50 readings, which represent recession.
Manufacturing output painted a grim picture, with production at U.S. factories falling to levels not seen since May 2020. If pandemic months are excluded, however, the downturn was the sharpest since the global financial crisis of 2008–09, as S&P Global’s manufacturing index fell from 47.9 in November to 46 in December, a 55-month low.
“Output is falling sharply and at an increased rate, in part due to weak export demand,” Chris Williamson, chief business economist at S&P Global, said in a statement. New orders declined for the sixth straight month, while new export orders showed a particularly steep drop, exacerbating the slowdown.
America’s goods-producing sector also faced sharp cost pressures in December, with input price inflation rising to its highest level in more than two years. Companies cited supplier-driven price hikes and higher transportation costs as key drivers. Despite these challenges, selling price increases in the sector remained modest, as companies struggled to pass costs onto consumers amid weak demand. Worries about a revival of inflation also drove a slight pull-back in optimism about future manufacturing activity.
“Some of the high spirits seen after the election in the manufacturing sector have been checked over concerns surrounding tariffs and the potential impact on inflation resulting from the higher cost of imported materials,” Williamson said. “December saw raw material prices spike sharply higher amid supplier-led price rises and higher shipping costs, in a reflection of busier supply chains in advance of threatened protectionism in the new year.”
While manufacturing is struggling, the U.S. service sector continued to soar, underpinning broader economic growth. S&P Global’s services activity index jumped to a 38-month high of 58.5 in December, with service sector output rising at its fastest pace in nearly three years.
“Business is booming in the U.S. services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021,” Williamson said.
The surge in services activity reflected robust demand, with new orders climbing at a rate not seen since March 2022. Service providers also benefited from easing input-cost inflation in the sector, which fell to a 4 1/2-year low in December.
Service sector confidence reached its highest level in December in more than 2 1/2 years, buoyed by expectations of favorable economic conditions under the incoming Trump administration.
While the service sector’s robust growth in December drove business activity to expand overall, the manufacturing sector’s deepening downturn poses challenges to broad-based economic expansion.
