Surveys show employment remains at risk as trade uncertainty and higher costs persist

Article originally posted on CoStar on December 10, 2025

Economic activity continued to diverge in November. While the services sector stabilized due to continued consumer spending, business conditions in the manufacturing sector deteriorated as new orders, employment and supplier deliveries declined.

The Institute for Supply Management’s purchasing managers index, or PMI, for nonmanufacturing industries rose to 52.6, its highest reading since February and marking the 10th month of expansion in that sector this year.

At the same time, the manufacturing PMI posted a 48.2 reading, its ninth consecutive reading signifying contraction.

Though these readings indicate the overall economy continues to grow, the pace of that expansion has slowed.

Price pressures eased in the services sector, with that index falling to 65.4 from 70, while the manufacturing prices index ticked up slightly to 58.5 from 58 in October.

Lower energy prices provided some cushion for the plastics, rubber and petroleum manufacturing subsectors. At the same time, cost increases for aluminum, copper, electrical equipment and other commodities drove input prices higher across other goods-producing subsectors.

Among nonmanufacturing subsectors, only construction saw cost declines, the result of broader cooling in the sector as commercial and residential groundbreakings continue to slow. In both broader sectors, however, price pressure remains significantly above the pre-tariff two-year average of 58.9 in the services sector and 50.1 in manufacturing.

In cautionary news for the labor market, employers in both manufacturing and nonmanufacturing industries remain reluctant to add headcount.

Although employment conditions in the services sector purportedly improved for the fourth consecutive month, the improvement reflected a slower contraction rather than an expansion. Employment was the only component of the PMI for services to signal contraction, even as it rose to 48.9, up from a low of 46.4 in July. Manufacturing employment fell to 44, which was one of its lowest readings of the year.

Despite the slowdown in employment, overall manufacturing production ticked higher, rising 3.2 percentage points to 51.4, the only expansionary component in the November manufacturing index. Manufacturing production fluctuated throughout 2025, typically following expansions in new orders two to three months earlier as factories ramped up production to fulfill those orders.

New manufacturing orders reached expansionary territory in August and neared that level in October, at 49.4, leading to production growth in September and November.

This uptick in production, however, is unlikely to prove sustainable across subsectors.

Orders continued to rise in higher-tech sectors such as computer and electronic products and machinery, as well as domestically oriented food and beverage manufacturers. Export orders, on the other hand, continued to contract for the ninth consecutive month, underscoring the impacts of trade policy disruptions, which were reinforced by respondent commentary.

Survey respondents noted that uncertainty due to trade policy is affecting their operations, citing disruptions to supply chains, higher costs and the need to reduce headcount. But the federal government shutdown, which lingered through Nov. 12, played a surprisingly limited role in respondent commentary. In fact, shutdown impacts could have given the PMI for services an artificially positive boost.

Consider how the index interpreted the slowdown in deliveries during the shutdown. The index generally regards such slowdowns as a sign of increased economic activity. That’s because in normal times, when consumer demand strengthens, it tends to make deliveries slower and items more difficult to ship out. But in this case, the slowdown in deliveries was caused by shutdown-related reductions in air traffic. As a result, even though the supplier deliveries component of the index has been broadly expansionary during the year, the index recorded an abnormally sudden jump of 3.3 points to 54.1 in November, the component’s highest reading since August 2022.

Other nonmanufacturing index components remained expansionary. The business activity index rose to 54.5 in November, up from 49.9 in September. And although new orders continued to show expansion, the index fell to 52.9, a 3.3 percentage point decline from October.

With respondents noting a “year-end push” of activity, slower expansion in new orders may hint at a slower start to 2026.

The two surveys suggest further weakening in the labor market is yet to come, as firms juggle higher input costs, trade uncertainty and, in some cases, reduced demand for their products.

At the same time, the combination of higher input costs and reduced headcount leaves us with the prospect of higher prices and slower growth— the classic recipe for stagflation, an economic condition that the Federal Reserve would not be happy to face.