U.S. Manufacturing Output Strong—but PMI Signals Mounting Risks Ahead

The U.S. manufacturing sector remains economically significant—both in terms of overall output and its contribution to GDP—even as it faces persistent headwinds. According to recent data, real output in 2024 reached a record high of about $2.913 trillion, positioning the U.S. as the second-largest global manufacturer after China. However, even as output climbed, employment in manufacturing remained comparatively muted, numbering around 12.76 million. This gap between rising output and stagnant jobs is symptomatic of advanced automation, offshoring of labor-intensive tasks, and shifting competitive pressures.

This strong output has translated into meaningful contributions to GDP growth. For example, in the third quarter of 2023, the private goods-producing industries—including both durable and nondurable manufacturing—rose by 10.2%, making them leading contributors to overall GDP expansion that quarter. Similar trends continued into Q4 of 2023, with manufacturing among the stronger sectors propelling private goods-producing output, although overall GDP growth slowed.

Despite these strong output and growth figures, leading indicators suggest manufacturing is under contraction. The Institute for Supply Management’s PMI fell to 47.9 in December 2025—its ninth straight month below the 50 expansion threshold. New orders remain weak (47.7), inventories continue to shrink (45.2), and employment sub-indices have only marginally improved (though still deep in contraction: 44.9). Rising costs—particularly from tariffs—are cited by industry participants as significantly impacting margins, investment decisions, and hiring.

Strategically, this creates a tension. Manufacturers with exposure to international trade or heavy raw material imports are especially vulnerable to shifting tariff regimes and supply chain disruptions. Those investing in automation, lean production methods, or moving higher up the value chain may preserve output and profits but may also see job numbers lag. Policy interventions—tariff stability, investment in workforce reskilling, and trade diplomacy—could play outsized roles. Firms need to scrutinize their demand forecasts, inventory strategies, and cost structures more intensely than in periods of steady growth.

Open questions include whether domestic demand can compensate for weak export growth, whether labor market constraints are restricting ramp-ups in output, how inflation and input cost pressures evolve into 2026, and whether alternative surveys (e.g., S&P’s manufacturing PMI) will corroborate or diverge from ISM’s contraction readings.