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Report On Business® Roundup: December Manufacturing PMI®

January 03, 2025
By Dan Zeiger

If U.S. factory activity were a track, the Manufacturing ISM® Report On Business® data for December suggested that, for the first time in a while, the starting blocks might be of some use. However, significant hurdles are in place.

First, the good news: The Manufacturing PMI® reading of 49.3 percent beat analysts’ expectations and was the second-highest of 2024. As the year ended, there were signs that an uptick in demand could turn into something lasting, and a long-awaited growth cycle is looming for a sector that has contracted for nine consecutive months, and 25 of the last 26.

While manufacturing companies savor the small victory (and hope to pick up speed out of the blocks), they await the incoming Trump administration, which is expected to be business friendly but whose promises on tariffs and immigration could result in many of the same anxieties felt from 2017-21.

It all adds up to what should be an interesting 2025, Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, told a conference call of reporters on Friday.

“2024 was quite a year that started out and ended in a dynamic way,” he said. “It looks like the manufacturing sector turned a corner in November, and there’s a new growth profile. There are a lot of variables in 2025 — geopolitical, tariffs and the use of economic tools to solve non-economic issues. It should be a lot of fun to watch.”

In December, the New Orders Index grew for a second straight month, up 2.1 percentage points to 52.5 percent. The Customers’ Inventories Index reading of 46.7 percent was in “too low” territory that is traditionally a positive sign for future production, and the Backlog of Orders Index registered 45.9 percent, its highest level since March.

The Production Index increased 3.5 percentage points to land in expansion territory at 50.3 percent, while the Employment Index dropped to 45.3 percent. The latter is by design, Fiore said, as companies continued to right-size staffing levels — a process that should end soon as companies get in line with their revenue plans.

“Output was really stable, and employment continued to contract at fairly healthy levels,” Fiore said. “That’s a good sign that indicates to me that manufacturing companies have a good handle on what they need to do to maintain their revenue levels.”

He added, “There’s never a good time for workforce reductions because you’re dealing with lives and families. You’d prefer to do it in October or November over December. But companies did what they felt they had to do.”

If the demand pickup is lasting, the Supplier Deliveries Index will be one to watch in the coming months. Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.

In December, that index registered 50.1 percent, a 1.4-percentage point increase. The Supplier Deliveries Index residing in the mid-50s would be a sign of sustained demand, and a big boost for the composite PMI®.

“That's what I’m waiting for now, to confirm that the supply base is starting to move to match the growth cycle,” Fiore said. “A reading of 50.1 percent is not that exciting, but if it gets around 54 percent, that’s a verification that demand is coming back.”

Another reading to focus on, Fiore said, is the Prices Index, which at 52.5 percent in December continued to show consistent, though weak, growth. He noted that recent U.S. consumer price index and producer price index readings have indicated more flat increases.

Prices will be a critical gauge in the coming months amid the Trump administration’s stated aims on tariffs and immigration that are considered inflationary. Also, the U.S. Federal Reserve’s approach to interest rates will continue to be watched closely.

Tariffs were the subject of more than a third of Manufacturing Business Survey panelists’ comments in December, Fiore said. A key factor will be ability to pass price increases along to customers; the ISM Supply Chain Planning Forecast in December reported that companies — particularly in manufacturing — were generally less successful in 2024 than in previous years.

“The environment is different now, and people might just walk away,” he said.

The Report On Business® roundup:

Barron’s: U.S. Manufacturing Activity Contracts Again, but Demand Is Improving. “Stocks don’t always react to the ISM report. To some extent, it tells investors what they already know. Still, the new orders reading is a positive for the sector and manufacturing stocks as they head into a new year.”

Bloomberg: U.S. Manufacturing Measure Edged Higher at End of Last Year. “While the survey overall indicates less pessimism among factory managers in the aftermath of Donald Trump’s presidential election victory, the path forward may prove bumpy. Potential tariffs, weak overseas economies and a stronger dollar risk damping enthusiasm about a more favorable regulatory environment and pro-business fiscal policy.”

Mace News: December ISM Manufacturing Shows Signs of Pickup on Demand Side but Layoffs Continue. “Fiore said supply managers are ‘concerned’ about the threat posed by Trump to impose a 25-percent tariff on all goods from Mexico and Canada, and an additional 10-percent tariff on imports from China, all part of his drive to crack down on illegal drugs and immigration. But at the same time, they are trying to minimize the impact by seeking alternative supplies at this point and the PMI is unlikely to be affected until April onward, he said.”

MarketWatch: Manufacturers End 2024 in a Slump, but Rising Orders Raise Hopes For Recovery. “High interest rates and a shift in consumer spending habits wrought by the pandemic have curbed sales and investment in the industrial side of the economy. Businesses are hopeful the incoming Trump administration will pursue policies that give them a boost, but some of the proposals, such as high tariffs and a crackdown on immigration, could hurt them instead.”

Reuters: U.S. Manufacturing PMI® Rises to Nine-Month High in December. “Manufacturing was battered by the Federal Reserve's aggressive monetary policy tightening in 2022 and 2023 to tame inflation. … A pledge by President-elect Donald Trump's incoming administration to cut taxes could provide a boost to manufacturing. But other policy promises, including higher tariffs on imported goods, could raise prices of raw materials.”

The Wall Street Journal: U.S. Factory Activity Contracts at Slower Rate Amid Uptick in Demand. “(The reading was) better than the 48 percent from a consensus of economists polled by The Wall Street Journal. However, with the index still under the 50 no-change mark, activity contracted for the ninth straight month, dragged by continued weakness in employment and backlogs of orders.”

ISM’s Services PMI® will be unveiled on Tuesday, and the Hospital PMI® on Thursday. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/NeoPhoto)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.