Tariffs Push U.S. Manufacturing PMI to 14-Month Low

The U.S. manufacturing sector contracted further in December as the ISM manufacturing Purchasing Managers Index fell to 47.9, the lowest reading since October 2024, the Institute for Supply Management said. By ISM’s official tally the reading represented the 10th month of contraction, with the forward-looking new orders subindex at 47.7 in December, little changed from November’s 47.4 and signaling continued weakness in demand.

The employment subindex fell again in December, extending a malaise in factory hiring, while the ISM prices-paid series showed factory input costs remaining elevated, described in ISM materials as “grinding higher.” Together the readings present a portrait of an industry facing weaker sales and squeezed margins: companies are seeing less demand for finished goods even as the prices they pay for parts and raw materials fail to ease.

Economists and industry analysts point to sweeping import tariffs imposed under the Trump administration as a key factor. Higher duties on a wide range of manufactured imports have translated into higher goods prices, curbing consumer and business demand for domestically produced and imported goods alike. The tariff effect is compounding other pressures, including persistent labor shortages in key trades and a shift in capital spending toward a narrow set of industries benefitting from the AI investment boom, leaving much of the sector undercut.

Policy proposals aimed at revitalizing manufacturing through infrastructure and targeted industrial investment have been advanced by lawmakers and private proponents, but the December ISM reading suggests stimulus alone may not quickly offset the drag from tariffs and structural constraints. Elevated input costs complicate the inflation outlook: while overall headline inflation has eased from earlier peaks, stubborn goods price pressures driven by trade policy raise the risk of a more protracted disinflation path, potentially influencing monetary policy decisions in 2026.

Markets and business leaders will watch new orders and employment as early signals of whether the sector can arrest the slide. New orders contracting in 10 of the last 11 months indicates demand momentum is weak and could weigh on capital-goods producers and industrial suppliers into the first half of the year. At the same time, the data show uneven sectoral performance; segments tied to AI and advanced electronics have seen pockets of strength even as traditional manufacturing categories lag.

There is a difference in how the contraction episode is framed depending on the measure used: ISM’s official count marks this as the 10th month of contraction, while some alternative series that count consecutive monthly shrinkage arrive at a longer streak. Regardless of the accounting, the combination of soft demand, falling factory employment and high input costs presents a clear near-term challenge for U.S. industry and policymakers seeking to restore durable manufacturing growth. The trajectory in early 2026 will hinge on whether tariffs are eased, input-cost pressures abate, and demand signals in the new-orders series stabilize.