US Manufacturing Contraction Deepens as ‘Tariff Pain’ Hits Input Costs

The Institute for Supply Management (ISM) reported that its Manufacturing PMI fell to 47.9 in December, down from 48.2 in November and missing economists' expectations of 48.4. A reading below 50 signals contraction.

The internal damage

 The underlying data confirms the slowdown is broadening. Susan Spence, Chair of the ISM, highlighted a stark deterioration in the sector's breadth: 85% of manufacturing GDP contracted in December, up sharply from 58% in November.

"The percentage of manufacturing GDP in strong contraction increased to 43%, compared to 39% in November," Spence added.

While production remained marginally in expansion, new orders and employment stayed firmly in negative territory. To make matters worse, input prices rose for a 15th straight month, driven by higher metals costs and tariffs, a combination that leaves manufacturers with rising bills and shrinking order books.

Employment & sentiment

 The Employment Index offered a mixed signal, ticking up to 44.9 from 44.0 in November, but remaining deep in contraction. The headline number masks a grimmer reality on the ground: according to Spence, for every one comment regarding hiring, there were three regarding staff reductions.

"Companies continued to focus on accelerating staff reductions due to uncertain near- to mid-term demand," she noted.

Survey respondents explicitly cited trade policy and tariffs as ongoing headwinds, particularly for imported inputs. High inventory levels relative to sales are also prompting caution, though pockets of resilience persist in the technology sector.

Context: The long view

 Despite the current contraction, the sector’s long-term employment trend has shown resilience. According to the St. Louis Fed, manufacturing employment has edged higher since 2014, supported by facility growth in subsectors like food manufacturing, even as the industry’s share of the total US economy has settled at approximately 10.1%.