Manufacturing Grows As Services Sector Struggles ISM Report

Published: 01/30/2026
Supply Chain Forecasting Manufacturing Recovery Service Sector Growth
ISM's latest supply chain forecast indicates a steady recovery for US manufacturing in 2025, with projected revenue and capital expenditure growth, and increased confidence. While the service sector maintains overall growth, it faces challenges like rising costs and shrinking profit margins, leading to a slowdown in momentum. The report highlights the divergent recovery paths of these two key industries, providing crucial market insights for businesses. This divergence underscores the need for tailored strategies to navigate the evolving economic landscape.
Manufacturing Grows As Services Sector Struggles ISM Report

WASHINGTON - As year-end assessments begin, the future trajectory of the U.S. economy has become a focal point for analysts. The latest Supply Chain Planning Forecast report from the Institute for Supply Management (ISM) reveals a potential dual-track recovery in 2025: manufacturing shows signs of resurgence while the services sector confronts slowing growth.

Manufacturing: Emerging From the Downturn

After navigating challenges throughout 2024, U.S. manufacturing demonstrates robust recovery signals. While revenue growth reached just 0.8% in 2024 - slightly below May's 2.1% projection - manufacturers express optimism about 2025, anticipating 4.2% revenue growth. Approximately 60% of surveyed executives reported confidence in revenue expansion.

The sector shows notable divergence across industries. Among 18 tracked manufacturing segments, 10 achieved revenue growth in 2024. Technology and consumer goods sectors - particularly computers/electronics, furniture, and related products - led the recovery, benefiting from rebounding consumer demand and technological innovation.

Essential goods industries like food, beverages, and tobacco products maintained stable performance, demonstrating typical recession-resistant characteristics. Their consistent demand provides a stable foundation for broader manufacturing recovery.

Capital Investment Signals Confidence

Manufacturing capital expenditures grew 5.2% in 2024, significantly exceeding May's 1% forecast. This substantial investment indicates sector confidence, with 33% of respondents reporting average capex increases of 30%. However, 20% reported declines averaging 21.2%, reflecting varied approaches across businesses.

Additional positive indicators include:

  • Price increases: 3% in 2024 with similar projections for 2025
  • Employment growth: 0.8% expansion in 2024
  • Capacity expansion: 1.7% growth in 2024, projected at 4% for 2025
  • Utilization rates: 82.3% in 2024, slightly above projections
"Manufacturing purchasing and supply executives anticipate overall growth in 2025," said Tim Fiore, Chair of the ISM Manufacturing Business Survey Committee. "They express optimism about first-half business prospects and enthusiasm for accelerated second-half growth."

Fiore noted manufacturing experienced 28 consecutive months of growth from June 2020 through September 2022 before contracting in November 2022. The sector has remained in contraction since, with only one month of expansion (March 2024) during this period.

Services Sector: Growth Moderates Amid Challenges

Contrasting manufacturing's recovery, service sector growth shows signs of deceleration. ISM data indicates 3.7% revenue growth for service firms in 2024, exceeding May's 2.9% forecast. However, only 51% reported improved revenues (averaging 9.6% growth), while 11% experienced declines (averaging 10.5%).

All 18 service industries reported 2024 growth, demonstrating sector resilience. However, expansion rates varied significantly, with pandemic-affected segments like travel and hospitality continuing to face recovery challenges.

Service sector capital expenditures are projected to grow 5.1% in 2025, with 33% anticipating average increases of 21%. Capacity utilization reached 87.4% in 2024, slightly below May's 88.6% reading.

Key service sector metrics include:

  • Capacity growth: 3.2% in 2024
  • Price increases: 5.2% in 2024, projected at 5.3% for 2025
  • Employment growth: 0.8% projected for 2025
  • Labor costs: Expected to rise 3.5% in 2025
"Services supply executives report capacity utilization at 87.4% of normal levels," said Steve Miller, Chair of the ISM Services Business Survey Committee. "They maintain first-half optimism and expect continued second-half growth, with anticipated capital investment increases."

Navigating the Dual-Track Economy

The ISM report paints a complex economic picture for 2025, with manufacturing resurgence contrasting service sector challenges. This divergence presents both opportunities and obstacles for businesses navigating the recovery.

Manufacturers appear positioned to capitalize on recovering demand through capacity expansion and productivity investments. Service providers face pressure to optimize operations amid rising costs while maintaining quality standards.

The divergent trajectories underscore the importance of sector-specific strategies and policy support to sustain broad economic recovery through 2025 and beyond.

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