US Manufacturing Outlook Dec 2025: 8 Months of Contraction & Sectors to Watch

As we enter December 2025, the U.S. manufacturing sector faces a stark reality: eight consecutive months of economic contraction. For supply chain leaders and procurement teams, the "Great Freight Recession" of 2025 has created a bifurcated landscape where some industries are shedding capacity while others—driven by necessity and stabilization—are finding new footing. This post breaks down the winners and losers of Q4 2025 to help you forecast 2026.

11/29/20253 min read

a factory with a lot of machines in it
a factory with a lot of machines in it

The Big Chill: A Sector in Contraction

By December 1, 2025, the narrative for American manufacturing has solidified around one word: contraction. According to the latest data from the Institute for Supply Management (ISM), the manufacturing PMI dipped to 48.7% in October, marking the eighth straight month the sector has failed to grow. While a reading below 50 indicates contraction, the persistence of this trend suggests a structural adjustment rather than a temporary blip (ISM).

The "Great Freight Recession" we predicted earlier this year is now fully visible in the data. Manufacturers are working through old backlogs but are hesitant to book new capital expenditures due to lingering uncertainty over tariffs and elevated interest rates (Deloitte).

Sectors in Decline: The "Red" List

The pain is not distributed equally. Discretionary goods and raw material processing sectors have been hit hardest, driven by consumers pulling back on large purchases and industrial buyers de-stocking inventories.

According to the October 2025 Report on Business, the following industries reported significant contraction:

  • Textile Mills & Apparel: High sensitivity to import tariffs and lower consumer demand for soft goods has crushed output here (ISM).

  • Furniture & Related Products: With the housing market stalled by high rates, the demand for new home furnishings has evaporated.

  • Chemical Products: A bellwether for the broader industrial economy, weakness here signals that downstream factories are not ordering raw inputs (TD Economics).

  • Electrical Equipment: Despite the AI boom, general electrical components for construction and consumer appliances remain in a slump.

Green Shoots: Sectors in Growth

Despite the gloom, there are islands of resilience. Demand for essentials and a strategic rebound in automotive production have kept some factory lines humming.

  • Food, Beverage & Tobacco: As is typical in economic slowdowns, non-cyclical consumer staples continue to expand.

  • Transportation Equipment: After a rocky summer of retooling, this sector is rebounding. While some OEMs report sales "under budget," the parts manufacturing sub-sector is growing to replenish dealer lots (StatCan).

  • Primary Metals: Interestingly, while fabricated metals struggled, primary metal production grew in October, likely driven by defense and infrastructure projects that are less sensitive to consumer sentiment (ISM).

The "Flash" of Hope vs. Reality

A confusing signal emerged in late November when S&P Global released its "Flash" PMI, which printed a 51.9—technically expansionary (S&P Global). Why the disconnect with the ISM’s 48.7?

The S&P index weighs "output" heavily, and factories are producing goods to clear backlogs. However, the ISM index weighs "sentiment" and "new orders" more heavily. The conclusion for December? Factories are busy finishing old work, but the sales pipeline for Q1 2026 is drying up.

Conclusion: What to Watch in 2026

As we close the books on 2025, the "China Plus One" strategy and tariff mitigation efforts will likely dominate boardroom discussions. For now, caution is the strategy of choice. If you are buying in the Chemical or Furniture sectors, expect aggressive pricing as suppliers fight for volume. If you are sourcing Auto Parts or Food ingredients, expect firmer pricing as demand holds steady.

Works Cited

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