2025 was a year of inconsistencies: We started the year with an ISM Purchasing Managers Index in the expansion zone (50.9) and ended it with manufacturing mired—barely, but still—in the contraction zone (47.9), marking the 10th straight month of contraction for the sector. At the same time, national economic output experienced a remarkable seesaw effect, with Q1 2025 GDP contracting, only to bounce back in Q2 at a 3.8% annualized rate and in Q3 at a 4.3% annualized rate. Part and parcel with this growth, U.S. manufacturing gross output reached a record high in mid-2025 at a seasonally adjusted annual rate of $7.2 trillion.
We also started 2025 with an annualized U.S. CPI of 3.0% and finished November at an annual rate of 3.1%—not as significant a drop as the Federal Reserve would have liked, but a move in the right direction. Part of the consumer cost challenge, according to ISM, is that roughly one-third of manufacturers plan to pass all tariff cost increases on to customers, while just over half said they’ll pass along some of those additional costs. Meanwhile, the U.S. unemployment rate at the start of the year was 4.0% and finished the year at 4.6%, with American manufacturing employment remaining relatively stable at around 12.7 million employees.
As for 2026, bet on investments in smart manufacturing—including digitalization and AI—to continue to increase dramatically. A Deloitte survey found that more than three-quarters of manufacturers plan to invest 20% or more of their improvement budgets on advanced technologies.
(Updated 1/8/26)
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