U.S. manufacturing activity contracted for the tenth consecutive month in December, but the details of the report suggest production could strengthen in the months ahead.
The Institute for Supply Management’s manufacturing index fell to 49.3 from 48.4 in November, remaining below the 50 threshold that separates expansion from contraction. The decline was driven primarily by producers drawing down their raw materials inventories at the fastest pace since July 2023.
But customer inventories—the stockpiles held by manufacturers’ clients—shrank at the fastest rate since October 2022. When customer inventories fall sharply, it typically signals that new orders and production will need to increase to replenish those depleted stocks.
Production rose for the second consecutive month, growing at a slightly faster pace than in November. Employment declined for the eleventh straight month, but the pace of job losses slowed.
New orders contracted for the fourth consecutive month, though export orders showed slight improvement from November’s pace of decline.
The prices-paid index held steady at 58.5, indicating manufacturers continue to face elevated input costs. The measure is 6 points higher than it was at the end of 2023.
Supplier deliveries slowed and order backlogs continued to shrink. The imports gauge fell to a seven-month low.
Respondents to the ISM survey cited uncertainty about trade policy and tariffs as ongoing concerns, though many expressed optimism that clearer policy direction and potential fiscal stimulus could boost capital spending later this year.
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