The Institute for Supply Management’s (ISM) manufacturing Purchasing Managers Index (PMI) rose to a nine-month high of 49.3 in December, signaling a rebound in production and new orders. However, the outlook remains uncertain due to the threat of higher tariffs on imported raw materials.
The PMI reading is below 50, indicating contraction in the manufacturing sector, which accounts for 10.3% of the US economy. Despite this, six industries, including electrical equipment, appliances, and components, reported growth last month. Meanwhile, textile mills, machinery, and transportation equipment reported contraction.
Manufacturers cited concerns over a “softening in sales” during peak season, while transportation equipment makers noted “automotive and powersport volume decreases.” Machinery manufacturers also reported a significant slowdown in production requirements in the last two months of the year.
However, sentiment was fairly optimistic among manufacturers of electrical equipment, appliances, and components, with some stating that new orders have brought their plant to full capacity. Primary metals producers also reported an uptick, albeit not a stable one.
The rise in the ISM’s gauge of imports to 49.7 from 47.6 in the prior month was attributed to advance material deliveries to avoid potential tariffs and companies acting to better absorb any potential tariff impact in the future. Manufacturers are building up stocks, with inventories climbing to 48.4 from 48.1 in November.
The Fed’s policy rate has been hiked by 5.25 percentage points in 2022 and 2023, but policymakers have forecast two rate cuts this year due to the economy’s resilience and uncertainty over the impact of the incoming Trump administration’s policies.
Source: https://www.reuters.com/markets/us/us-manufacturing-pmi-rises-nine-month-high-december-2025-01-03