3 Oct 2025
The ISM Manufacturing PMI report, aligning with expectations, indicated continued but marginal growth in the economy, specifically noting improvements in production and employment indices. However, a widespread contraction across many manufacturing sectors, driven by tariffs, rising costs, and economic uncertainty, limited overall improvement, with businesses expressing concerns about stagflation.
The ISM Manufacturing PMI report, issued by the ISM Institute, met expectations without surprising figures, indicating the economy has sustained slight growth for 65 consecutive months after a previous decline.
Specific indices showed varied performance: the production index increased, while the prices index finally saw a decrease. The order backlog index experienced minor changes, settling at 46.2, and employment recorded an increase. In contrast, the supplier deliveries index contracted for the second month, new export orders were slightly lower, and the imports index registered 44.7, a decrease from the prior month.
Manufacturing activity contracted at a slower rate, with production growth being the primary driver of a marginal 1.4% improvement in the PMI. Despite this, declines in new orders and inventories overshadowed the production increase, resulting in only one of four demand indicators (order backlog) improving, while new orders, export orders, and inventories contracted at an accelerated pace.
Both production and employment indices improved, reflecting the ongoing trend where companies prioritize managing employee numbers as a dominant practice.
In December, specific sectors experienced growth, including petroleum and coal products, primary metals, textile mills, fabricated metal products, and general manufacturing.
A wide range of industries faced contraction, such as wood products, apparel, plastic products, paper products, furniture, chemical products, electrical equipment, appliances, transportation equipment, nonmetallic mineral products, machinery, and computer and electronic products.
Businesses in the transportation equipment sector experienced significant weakening, reduced profits, and burdens from heavy taxes and tariffs. Price pressures escalated on both inputs and outputs, with companies passing on additional costs through price hikes of up to 20%, exacerbated by unannounced steel and aluminum tariffs. Despite interest rate cuts and tax reforms, capital projects remain suspended due to uncertainty, preventing new equipment orders. Businesses perceive themselves in stagflation, marked by high prices and reduced orders due to tariffs, leading many to cut overhead and lay off experienced staff.
The chemical products sector struggled with tariffs, increased costs, and goods being held at ports due to documentation issues. Persistent inflation and continuously low sales volumes raise concerns, compounded by a lack of expected improvement in the European market, threatening long-term business viability.
The machinery sector faced declining customer purchasing decisions, influenced by macroeconomic conditions like interest rate management and tariffs, resulting in lower production rates and heightened concerns over raw material and operational costs.
While delivery times for petroleum and coal products normalized, tariffs continued to impose additional costs on businesses.
Customer orders for heavy machinery decreased significantly due to tariffs, which severely increased the cost of capital equipment. Income expectations for 2025 remain stable, with no anticipated improvement in 2026.
The food and beverage sector operates in an unstable business environment, grappling with geopolitical tensions, weather disruptions, shifting trade policies, and heightened uncertainties. Agricultural commodities, especially oils, are highly sensitive to these factors. Inflation and evolving consumer trends add complexity, necessitating a diversified supplier base, long-term contracts, and formula-based pricing strategies to balance cost stability and flexibility.
The semiconductor industry, part of computer and electronic products, is significantly impacted by high tariffs, leading to increased component prices from Korea, China, and Europe. Despite efforts to expand nanotechnology in the US, the sector faces historically low sentiment due to persistent high prices.
Businesses in the plastic products sector experienced a slowdown and a decrease in order backlogs as customers delayed purchases, likely driven by concerns regarding the US economic outlook.
Fabricated metal products faced severe cost increases for hardware due to tariffs, which also affected costs for AI and stainless steel components. Maintenance, Repair, and Operations (MRO) products consistently grew more expensive, and a slowdown in the agricultural sector heavily impacted the profitability of raw materials.
The broader manufacturing sector and miscellaneous products reported devastating impacts from steel tariffs.
Due to potential government shutdown and unavailability of official data, economists increasingly rely on private reports, such as the ISM survey, to gain insights and clues about the economic situation.
Manufacturers experienced some relief from inflationary pressures on raw materials but still faced substantial increases in overall input costs. Markets are anticipated to remain volatile, influenced by the current government shutdown and its potential implications.
Many businesses believe they are currently in a period of stagflation, characterized by high prices and low orders, driven by tariffs and customer reluctance to pay elevated costs.
| insightTopic | impactArea | descriptionOfImpact | primaryCause |
|---|---|---|---|
| Tariffs Impact | Multiple Manufacturing Sectors (Transportation Equipment, Chemical, Metal, Electronic) | Tariffs led to significant increases in input and output costs, reduced profits, goods being held at ports, stalled capital projects, and higher prices for components and MRO products. | Government trade policy, including unannounced tariff additions. |
| Economic Uncertainty | Overall Manufacturing & Specific Industries (Transportation Equipment, Food & Beverage, Plastic) | Uncertainty caused stalled investments, delayed customer orders, decreased profits, business slowdowns, and heightened concerns about long-term business viability. | Geopolitical tensions, changing trade policies, government shutdown, US economic outlook, interest rate management. |
| Rising Costs | Transportation Equipment, Chemical Products, Machinery, Fabricated Metal Products | Businesses faced substantial price hikes, increased raw material costs, and higher operational expenses, leading to reduced profitability. | Tariffs, inflationary pressures, and supply chain issues. |
| Decreased Demand & Orders | Transportation Equipment, Chemical Products, Electronic Equipment, Plastic Products | Lower sales volumes, reduced order backlogs, and decreased production rates were observed across several sectors. | Tariffs, customer reluctance to pay higher prices, and broader economic concerns. |
| Stagflation Concerns | Transportation Equipment and Broader Manufacturing | Many businesses perceived themselves to be in a state of stagflation, characterized by high prices coexisting with low orders, as customers resisted elevated costs. | Combination of tariffs, inflationary pressures, and economic slowdown. |
| Workforce Adjustments | Overall Manufacturing (especially Transportation Equipment) | Companies engaged in layoffs of experienced staff and maintained workforce management as a prevalent practice. | Need for cost reduction, overhead management, and decreased demand. |
