US manufacturing loses momentum as 2025 ends with soft demand
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Growth in the US manufacturing sector softened in December as businesses adjusted to weakening orders and persistent external pressures, according to the latest S&P Global Purchasing Managers Index. The index slipped to 51.8 in December from 52.2 in November, signaling the slowest pace of expansion since the current growth phase began five months ago.
The decline reflects a range of emerging headwinds facing producers, including diminished export demand and uncertainty in global trade policy. While the reading remains above the neutral 50 mark that separates growth from contraction, the moderation in performance has raised concerns about how resilient the sector will be entering 2026.
New orders, a core measure of demand, fell for the first time in over a year. The downturn was accompanied by the seventh consecutive monthly decline in export orders, suggesting that international customers are pulling back in response to ongoing tariffs and trade friction. The drag from exports has become a structural issue in recent months, even as domestic order books held firm through much of 2025.
Output growth also moderated in December, falling in line with lower sales volumes and reduced demand visibility. Many firms that had been ramping up production through the third quarter slowed output increases in the final month of the year. Nevertheless, manufacturing businesses continued to build inventories for the fifth month in a row, albeit at a more cautious pace than November’s record setting stock accumulation.
Employment outlook strengthens despite softening growth
Despite softer demand indicators, employment in the sector rose at a solid pace in December. Many firms continued hiring to fill vacancies in anticipation of stronger conditions expected in the first half of 2026. This hiring trend reflects continued confidence in medium term demand, even as short term sentiment has deteriorated.
Companies reported that labor shortages remained an issue across several sub sectors, and many manufacturers indicated they were focusing on workforce readiness ahead of new project pipelines starting later in the year. The employment gains were spread across durable and nondurable goods producers and helped sustain overall momentum in industrial labor markets.
On the pricing front, the data revealed a modest easing in inflation pressures. Input cost inflation slowed to its lowest level in nearly a year, providing some relief to manufacturers after sustained increases in raw material and energy costs. However, the rate of input cost inflation remained elevated compared to long term historical norms.
Selling price inflation also eased, with December seeing the weakest pace of price increases since early 2025. While input and output price inflation both showed signs of slowing, the trend remains a key focus for analysts tracking margins and profitability in the sector. Producers continue to face pressure to absorb cost increases rather than fully pass them on to customers, especially as demand flattens.
Uncertainty around trade and tariffs weighs on confidence
Overall business sentiment among US manufacturers deteriorated in December. Survey respondents cited a combination of weaker order inflows, continued pricing volatility and persistent uncertainty surrounding US trade policy. The recent implementation of new tariffs on several categories of imported components and finished goods has added to the burden for manufacturers reliant on global supply chains.
Firms also expressed concern over the lack of clear guidance on future trade agreements and regulatory conditions, particularly regarding key trading relationships in Asia and North America. The protracted uncertainty is seen as a constraint on capital investment and long term planning across the sector.
Still, some analysts view the December data as part of a broader recalibration rather than the start of a downturn. They point to the continued expansion in output and employment as indicators that the sector remains fundamentally stable heading into 2026. However, the risk of further cooling cannot be dismissed, especially if global demand continues to weaken or if inflationary pressures resurface in early quarters.
In recent months, several large manufacturers have signaled plans to reduce capital expenditures or delay new capacity projects, citing caution in the face of slower-than-expected growth. Others are adjusting procurement strategies to manage cost exposure and improve working capital efficiency.
With the manufacturing PMI still above 50, the expansion in the sector continues for now, but the slowing pace highlights growing risks in the operating environment. As 2026 begins, policymakers and business leaders will be watching closely to determine whether the softness in December was a temporary adjustment or a sign of more persistent deceleration.
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