US Economic Outlook: ISM Reports Stagnancy Through 2025 Amid Trade Concerns

ISM Reports Economic Activity to Be Flat Through 2025

Recent analysis from the Institute for Supply Management (ISM) indicates that the United States economy is expected to remain largely stagnant for the remainder of 2025. This forecast is based on insights from the Spring 2025 ISM Supply Chain Planning Forecast, presented by industry leaders Timothy R. Fiore and Steve Miller. Key factors identified include ongoing concerns about inflation, persistent trade challenges, and geopolitical unrest that may hinder growth in both manufacturing and service sectors.

Manufacturing Sector Insights

The manufacturing landscape is projected to see a meager revenue increase of just 0.1% in 2025. This marks a stark decline from earlier December 2024 projections of a 4.2% increase. A disturbing trend shows that while 34% of manufacturers anticipate a revenue uptick averaging nearly 9.7%, 22% expect decreases averaging 14.1%, leaving 44% to foresee no changes at all. The manufacturing operating rate hovers around 79.2%, which is a notable drop from previous figures. Meanwhile, significant increases in raw material costs are anticipated, adding pressure to already thin margins. A decrease in capital expenditures by 1.3% is also foreseen, which stands in stark contrast to earlier forecasts.

For 2025, the majority of revenue growth in manufacturing is expected in sectors like Primary Metals, Computer Electronic Products, and Chemical Products. This trend indicates a mixed outlook, where sectors like Miscellaneous Manufacturing and Food, Beverage, and Tobacco are lagging behind.

Services Sector Outlook

The services segment is expected to remain completely flat, with no change in revenues compared to 2024. Forecasts suggest that only 33% of service providers expect revenue increases, averaging 9%, while 18% expect declines. The operating capacity for services stands at 86.5%, slightly lower than before. High inflation continues to weigh on price levels, with an expected increase of approximately 7.3% in prices paid for services over 2025. Employment within this sector is projected to shrink by around 1.6% as organizations deal with increased operational costs and pressing economic challenges.

Expected revenue increases in the services industry are primarily found within the Accommodation and Food Services, Arts, Entertainment, Recreation, and Finance and Insurance segments. However, the forecast reveals a stark decline in future revenue expectations as reflected in decreased projected revenues across multiple industries, down from the previous period.

Employment Trends

The anticipated job landscape paints a concerning picture, with manufacturing employment expected to see a minimal decrease of 0.1% and more pronounced declines in the services sector at about 1.6%. This trend highlights various challenges that organizations face amid increasing operational costs and lower demand.

Key Challenges Ahead

The looming threats of inflation, trade tensions, and geopolitical issues are persistent headwinds that executives in purchasing and supply chain management must navigate. The uncertainty surrounding ongoing tariff negotiations is influencing inventory stocking strategies, with many executives opting to either increase or decrease inventory levels in response to perceived pricing risks.

According to the special topics raised in the ISM report, many manufacturers are adapting to these conditions by reassessing their pricing strategies. A significant portion indicated their willingness to pass increased costs to customers, while others are considering alternative methods, such as reshoring production to reduce dependency on international trade networks.

Summary and Looking Forward

Overall, the ISM's revelations are a wake-up call for businesses navigating the complexities of 2025's economic climate. With stagnant growth projected across both manufacturing and service sectors, organizations are urged to remain agile, reconsider inventory and production strategies, and prepare to confront significant challenges in the coming months. As conditions evolve, the need for innovative approaches will be more crucial than ever in ensuring organizational success and sustainability.