The ISM Manufacturing Employment index’s drop to 44.00 in December 2025 reflects a contraction in factory hiring activity. This figure is well below the neutral 50 mark, indicating that more firms are reducing employment than expanding it. Compared to the 12-month average of 45.80, this reading suggests a sharper slowdown in manufacturing labor demand. The index has trended downward since March 2025’s peak of 47.60, with intermittent rebounds failing to sustain momentum.

Drivers this month

• Slower new orders growth reducing labor needs
• Supply chain normalization easing urgency for overtime and temp hires
• Elevated input costs pressuring margins, leading to cautious hiring

Policy pulse

The sub-50 reading aligns with Federal Reserve signals favoring a pause or potential easing in monetary tightening. Inflation remains above target, but cooling employment in manufacturing may reduce wage pressures, supporting a wait-and-see stance.

Market lens

Immediate reaction: The US dollar index (USD) slipped 0.15% post-release, while 2-year Treasury yields declined by 8 basis points, reflecting expectations of a less hawkish Fed. Equities in industrial sectors showed mild weakness.

The ISM Manufacturing Employment index is a key barometer of labor market health within the manufacturing sector, which accounts for roughly 8.50% of US employment. Its movements often presage broader employment trends and provide insight into production capacity utilization. The December 2025 reading of 44.00 contrasts with the 46.00 in November and the 47.60 peak in March 2025, underscoring a sustained weakening trend.

Comparative context

• August 2025 low: 43.40, the last comparable trough
• 12-month average: 45.80, indicating a generally softening labor market
• Pre-pandemic average (2019): ~52.00, highlighting current weakness

Monetary policy & financial conditions

The Federal Reserve’s ongoing rate hikes since early 2025 have tightened financial conditions, with the effective federal funds rate rising from 4.50% to 5.25%. Higher borrowing costs and cautious business sentiment have dampened capital expenditures and hiring plans in manufacturing. The ISM employment index’s decline supports the view that monetary policy is beginning to slow labor demand.

Fiscal policy & government budget

Fiscal stimulus has waned in 2025, with government spending growth slowing to 1.20% YoY. Infrastructure investments continue but have yet to offset private sector caution. The subdued fiscal backdrop limits offsetting support for manufacturing employment.

What This Chart Tells Us

Market lens

Immediate reaction: US Treasury yields fell sharply, with the 2-year note dropping 8 basis points, reflecting market expectations for a slower pace of Fed hikes. The USD weakened modestly, while industrial sector ETFs showed a 0.50% decline in early trading.

Looking ahead, the ISM Manufacturing Employment index’s trajectory will be shaped by several factors. The Fed’s monetary stance, global demand conditions, and supply chain dynamics remain critical. We outline three scenarios for the next six months:

Bullish scenario (25% probability)

• Manufacturing demand rebounds due to easing global supply constraints
• Index rises above 48, signaling renewed hiring
• Fed signals pause or rate cuts by mid-2026, boosting confidence

Base scenario (50% probability)

• Employment index stabilizes around 44–46
• Manufacturing growth remains modest, constrained by cautious capex
• Fed maintains current rates, monitoring inflation and labor data

Bearish scenario (25% probability)

• Index falls below 43, reflecting job cuts amid recession fears
• Global demand weakens due to geopolitical tensions or trade disruptions
• Fed forced to cut rates aggressively in response to economic slowdown

Structural & long-run trends

Long-term, manufacturing employment faces headwinds from automation, reshoring, and shifting global supply chains. Despite cyclical fluctuations, the sector’s labor share has declined from 12% in 2000 to under 9% today. The ISM index remains a vital real-time gauge of these evolving dynamics.

The December 2025 ISM Manufacturing Employment index reading of 44.00 highlights a sector under pressure. The data suggest that factory hiring is contracting amid tighter financial conditions and cautious business sentiment. While not yet signaling a broad labor market downturn, the manufacturing sector’s softness warrants close monitoring. Policymakers and investors should weigh this alongside other indicators to calibrate expectations for growth and inflation.

Balancing upside risks from potential supply chain improvements against downside risks from geopolitical shocks and global demand softness will be key. The ISM employment index remains a crucial early warning system for shifts in the US labor market and economic cycle.

Since 2020, the ISM Manufacturing Employment index and Boeing (BA) stock price have shown a positive correlation, with both reflecting manufacturing sector health. Periods of rising ISM employment readings often coincide with BA’s stock rallies, driven by increased aerospace production and hiring. Conversely, dips in the index have preceded BA price corrections, underscoring the index’s value as a leading indicator for industrial equities.

Year	Average ISM Employment Index	BA Year-End Price (USD)	Correlation Coefficient
2020	42.50	210	0.68
2021	47.80	265
2022	45.20	240