The U.S. manufacturing sector finished 2024 in a prolonged slump as prices accelerated and employment cooled.
Any reading below 50 indicates contraction. The monthly purchasing managers’ index—a gauge of the industry’s prevailing economic direction—has been stuck in recession territory every month since November 2022, except in March 2024.
Timothy Fiore, head of the ISM’s Manufacturing Business Survey Committee, says the improvement was driven by strengthening demand.
“U.S. manufacturing activity contracted again in December, but at a slower rate compared to November,” Fiore said in the report. “Demand showed signs of improving, while output stabilized and inputs stayed accommodative.”
According to the survey, new orders expanded for the second consecutive month. Additionally, new export orders exited from contraction and rose to “unchanged.”
Executives have presented mixed observations of business conditions.
“We are seeing a softening in sales. This is concerning as it’s our peak season,” said one food, beverage, and tobacco business leader, according to the survey.
“The increase in new orders has our plant at full capacity,” said an executive in the electric equipment, appliances, and components space.
The most notable developments in the monthly report were the higher-than-expected price acceleration and the extended drop in employment.
Prices have risen in 11 of the last 12 months, driven by higher costs for aluminum, copper, natural gas, electronic components, and steel.
Manufacturing employment has declined for seven straight months and 14 of the last 15 months.
“Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes,” Fiore said. “This action is supported in December by the approximately 1-to-2 ratio of hiring versus staff-reduction comments, compared to a 1-to-1.5 ratio the previous month, meaning more workforce reduction activity is occurring as we close 2025.”
The ISM report concludes that while the overall economy grows, the manufacturing sector is still slowing.
Last month’s S&P Global PMI report confirmed falling output, new export orders, and surging input cost inflation.
A Sign of Things to Come
Jeffrey Roach, chief economist of LPL Financial, believes that the increase in demand last month may have been due to companies’ front-running President-elect Donald Trump’s trade policies and preparing for impending tariffs.“New orders spiked in December as firms pulled forward demand in anticipation of imminent tariffs,” Roach said in a note emailed to The Epoch Times.
The incoming administration has not officially outlined its trade policies. However, during the presidential campaign, Trump presented a blueprint that features a universal 10–20 percent tariff on all imports and a 60–100 percent levy on Chinese goods arriving in the United States.
Shortly after winning the November election, the president-elect also threatened to impose 25 percent tariffs on goods from Canada and Mexico to bolster border security and combat the illicit drug trade.
At the same time, says Roach, the growth in new orders could signal “solid growth in corporate capital expenditures and a driver of GDP growth in 2025.”
Economists have debated the pros and cons of Trump’s potential trade strategy, discussing the possible effects on growth and inflation prospects.
David Miller, chief investment officer and senior portfolio manager at Catalyst Funds, believes U.S. businesses will benefit.
“The real tariff concerns lie in areas where American companies compete with foreign firms,” Miller said in a note emailed to The Epoch Times. “These tariffs are likely to benefit U.S. companies while posing significant challenges for their foreign counterparts.”
The upcoming manufacturing figures, set to be published next week, may indicate additional cooling in the overall U.S. labor market.
“The manufacturing job market continues to cool and is likely a signal of [a] broader weakening in hiring activity,” Roach said. “Investors should expect next week’s payroll report to show sub-200k gains.”
Early estimates suggest that the U.S. economy created 150,000 new jobs last month, and the unemployment rate was unchanged at 4.2 percent.
Recent employment statistics depict a labor market remaining resilient.
Continuing jobless claims—a measure of the number of individuals continuing to receive unemployment benefits—tumbled by 52,000 to a three-month low of 1.84 million. The four-week average, which removes week-to-week volatility, slipped by more than 3,000 to 223,250.
