- by New Deal democrat
We are still suffering the data aftereffects of the government shutdown. Normally we begin each month with reports on both construction spending as well as manufacturing. But the construction report even now has only been updated through August, and won’t be updated for September and October until January 21. And by the way, the current spending bill expires on February 1, so another shutdown may be around the corner.
Which means, as I have said repeatedly for the last month or more, that the regional Fed manufacturing and services reports, as well as the ISM manufacturing and services reports, are our best contemporary picture of the economy.
And this morning’s ISM manufacturing report for December confirms what the regional Fed reports were telling us: the forward-looking situation is improving, in the sense of being “less bad,” while prices paid increased remain widespread, even if not so much as earlier in 2025, and employment in the goods producing sector continues to contract.
In more detail, the headline number declined -0.3 to 47.9 (recall that any number below 50 means contraction), the lowest reading since October of 2024; but higher than most readings in 2023 and 2024:
The more forward looking new orders component increased 0.3 to 47.7, generally continuing the “less bad” trend of the latter part of 2025 and more broadly, since 2023:
On the other hand prices paid were steady at 58.5, lower than the readings approaching 70 last spring, but aside from that higher than all but one reading in 2023 and 2024:
And employment remained dismal at 44.9, up 0.9 for the month, but on a three month rolling basis continuing the declining trend since the middle of 2024.
This suggests a further decline in goods-producing jobs when we get the December employment report at the end of this week.
For forecasting purposes, I use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively.
With today’s report, the three month average for the headline number is 48.3. The more significant news is that the three month average of the more leading new orders subindex declined slightly further to 48.2. At the same time, both remain slightly better than their low points in 2022-23, which is noteworthy because there was no recession then.
As I have noted in all of these monthly reports for the past year, for the economy as a whole the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. In the non-manufacturing report, the averages of the last two months for the headline and new orders numbers have been 54.4 and 54.5, respectively. Needless to say, if the services sector remains as strong in December as it has been in October and November, then the weighted average is going to remain signficantly in expansion territory.
To sum up, the ISM manufacturing report for December, to which I would give more wight, confirmed the average of the regional Fed manufacturing reports for the month. Those indicated a stabilizing to slightly contracting manufacturing sector, with contracting employment, and also facing continuing stagflationary price pressures.
There has been a very significant divergence in 2025 between the regional Fed services reports, which have indicated pronounced weakness, vs. the ISM services reports, which for all months but one this past summer have indicated good growth. On Wednesday we will see if this continues, or whether services are also beginning to weaken.
