At 10:00 a.m. Eastern time today, the Institute for Supply Management will release its December Manufacturing Purchasing Managers' Index—the first major piece of economic data for 2026 and a crucial indicator of whether U.S. factory activity is stabilizing or continuing to decline. The consensus expectation is not encouraging: analysts forecast the ninth consecutive month of contraction, matching the longest manufacturing downturn since the financial crisis.

For investors, this morning's reading matters beyond its immediate implications for industrial stocks. The manufacturing PMI provides early signals about economic direction, employment trends, and pricing pressures that influence Federal Reserve policy and market valuations across sectors.

What to Expect

Economists surveyed by major financial institutions expect the December ISM Manufacturing PMI to come in at approximately 48.3 to 48.4, essentially unchanged from November's 48.2 reading. Any figure below 50 indicates contraction, meaning the manufacturing sector is shrinking rather than growing.

November's report showed deterioration across multiple components:

  • New orders: 47.4, down from 49.4, suggesting weakening demand
  • Employment: 44.0, down from 46.0, indicating accelerating job losses
  • Supplier deliveries: 49.3, down from 54.2, reflecting slowing supply chain activity
  • Production: 47.6, maintaining contractionary territory
  • Inventories: 47.8, as companies work down excess stock

A December reading near expectations would confirm that the manufacturing recession that began in mid-2025 shows no signs of abating.

The Historical Context

Nine consecutive months of manufacturing contraction is unusual but not unprecedented. The sector experienced similar extended downturns during the 2008-2009 financial crisis and the 2001 recession. What makes the current episode notable is that it's occurring alongside an otherwise resilient broader economy.

GDP growth remains positive. Consumer spending, while slowing, continues to expand. The unemployment rate, while elevated from 2024 levels, sits at historically low levels. Manufacturing appears to be in a sector-specific recession rather than leading a broader economic downturn.

This divergence creates analytical challenges. Manufacturing has traditionally been a reliable leading indicator—when factories cut production, broader economic weakness typically follows. But the economy's structural shift toward services has weakened this relationship, leaving economists uncertain how much weight to place on manufacturing data.

Why Manufacturing Is Struggling

Several factors have combined to pressure U.S. factory activity:

High interest rates: Manufacturing is capital-intensive, and elevated borrowing costs reduce investment in new equipment and facilities. Companies that might have expanded in a low-rate environment are instead conserving cash and deferring projects.

Strong dollar pressures: While the dollar has weakened from its 2025 peak, it remains elevated by historical standards. This makes U.S. manufactured goods more expensive for foreign buyers and imports more competitive domestically.

Inventory normalization: Many companies built excess inventory during the supply chain disruptions of 2024-2025. The subsequent drawdown has reduced new orders as businesses work through accumulated stock.

Tariff uncertainty: The Trump administration's aggressive tariff policies have disrupted supply chains and raised costs for manufacturers who rely on imported components. Some companies have delayed investment decisions pending policy clarity.

Global weakness: Manufacturing is globally connected, and slowdowns in China and Europe reduce demand for American industrial goods.

The Employment Sub-Index Warning

Perhaps the most concerning element of recent manufacturing data is the employment sub-index. November's reading of 44.0 was the lowest in over a year and suggests accelerating job losses in the factory sector.

Manufacturing employment trends matter beyond the sector itself for several reasons:

  • Multiplier effects: Factory jobs support additional employment in supply chains, logistics, and local services
  • Wage levels: Manufacturing jobs typically pay above-average wages, making their loss particularly impactful for affected communities
  • Geographic concentration: Factory jobs cluster in specific regions, meaning downturns hit some areas much harder than national averages suggest
  • Leading indicator: Manufacturing layoffs sometimes precede broader labor market weakness

This morning's employment sub-index reading will be closely watched for signs of stabilization or further deterioration.

Market Implications

The manufacturing PMI influences markets through several channels:

Industrial stocks: Companies in the S&P 500 industrials sector tend to move with manufacturing data. Caterpillar, Deere, General Electric, and similar companies often react to PMI releases.

Interest rate expectations: Weak manufacturing data could reinforce expectations for Federal Reserve rate cuts, supporting bond prices and growth stocks while potentially weighing on financials.

Dollar direction: Poor economic data typically weakens the currency as rate cut expectations increase and relative growth differentials narrow.

Commodity prices: Manufacturing activity drives demand for industrial metals, energy, and other inputs. Continued weakness could pressure commodity prices and related equities.

The Services Counterweight

Tomorrow brings the ISM Services PMI, which covers the much larger services portion of the U.S. economy. November's services reading of 52.1 indicated expansion, suggesting the broader economy remains on firmer footing than manufacturing alone would indicate.

This divergence between manufacturing contraction and services expansion has persisted for months, challenging traditional recession-prediction models. Some economists argue the services strength means manufacturing weakness is contained. Others worry that manufacturing declines eventually spread to services with a lag.

Comparing today's manufacturing reading to tomorrow's services result will provide a more complete picture of economic momentum heading into 2026.

What the ISM's Own Forecast Says

The Institute for Supply Management itself has offered a relatively optimistic outlook for 2026. In its annual forecast released in late December, ISM projected that "economic improvement in the United States will continue in 2026."

Specifically, ISM forecasts:

  • Manufacturing revenues: Expected to increase in 16 of 18 manufacturing industries
  • Capital expenditures: Projected to rise 3% in manufacturing (after 3.5% growth in 2025)
  • Services revenues: Expected to increase 4.6%
  • Services capacity utilization: Currently at 90.2%, indicating healthy activity levels

If ISM's own projections prove accurate, today's weak reading may mark the late stages of the manufacturing downturn rather than the beginning of a new leg lower.

What to Watch at 10am

Beyond the headline PMI number, today's release will include several details worth monitoring:

  • Prices paid: Any acceleration could signal inflation pressures that complicate Fed policy
  • New orders vs. inventories: The spread between these components indicates future production trends
  • Respondent comments: Qualitative feedback from purchasing managers often provides context that numbers alone cannot capture
  • Industry breakdown: Strength or weakness in specific sectors can inform stock selection

The Bottom Line

This morning's ISM Manufacturing PMI is the first significant economic data point of 2026 and carries implications for Federal Reserve policy, sector allocation, and the broader growth outlook. While a ninth consecutive month of contraction would extend an already lengthy downturn, the real question is whether the data shows signs of stabilization or continued deterioration. Markets will react accordingly, with weak data potentially boosting rate cut expectations while reinforcing concerns about economic momentum. Watch for the release at 10:00 a.m. Eastern.