US Manufacturing Activity Grinds to 14-Month Low

Don’t worry: You weren’t the only one limping out of 2025.

US factory activity contracted for the 10th straight month in December, according to the latest Institute for Supply Management (ISM) survey released Monday, reaching a 14-month low and bucking most economists’ expectations. Why? Most experts are simply pointing to the two most significant macroeconomic forces that shaped last year.

Riffing on Tariffs

When the White House embarked on its tariff-fueled trade war early last year, it pitched the nation that a new protectionist stance could reverse a long decline in American manufacturing. The jury is still out on the project’s efficacy. The US trade deficit shrank to a five-year low in September as imports shrank and exports increased, according to the most recent available Commerce Department data released last month.

On the other hand, respondents in the ISM survey cited tariffs and high input prices as major concerns (one survey respondent said tariffs resulted in a 17% revenue hit). Just two of the 17 surveyed industries experienced growth in December, the fewest since late 2023, while overall headcount declined for the 11th consecutive month amid a continued decline in new orders.

Meanwhile, as the sector navigated new trade war headwinds, it was forced to contend for capital and resources with the tech industry’s massive artificial intelligence data center buildout:

• According to the Federal Reserve Bank of St. Louis, US manufacturing construction spending — an indicator of investment in new and expanded factories — sank 4.5% from January through August 2025, the most recent data available. That’s a stark contrast to the monumental boom in data center construction last year.
• The data center boom “sucks resources from other projects. There’s absolutely no doubt about it,” Andrew Anagnost, the CEO of engineering and construction software firm Autodesk Inc., recently told Bloomberg.

Any Indication: Coupled with the downbeat ISM report came the latest reading from the Atlanta Fed’s GDPNow gauge, which estimated US fourth-quarter GDP was 2.7%, down from a previous prediction of 3%. Both readings probably have manufacturers hoping for a rate cut when the Federal Reserve’s monetary policy committee reconvenes late this month, though potentially the most important development for the industry may come early this year, when the Supreme Court is expected to rule on the legality of the White House’s tariff regime. “Real consumer spending is down, and tariffs are ultimately to blame. I hope for some return to free trade, which is what consumers have ‘voted for’ with their spending,” one survey respondent told the ISM.