Empire State Review Contributor 
U.S. business expansion slowed significantly in December 2025, with both manufacturing and services sectors showing their weakest performance in six months, according to preliminary survey data. The composite Purchasing Managers Index (PMI), which tracks overall business activity, fell to 53.0 from 54.2 in November. While this still indicates growth, it signals a deceleration in the pace of expansion. The PMI’s decline reflects a cooling in demand, with new orders expanding at their slowest rate in 20 months and manufacturing orders experiencing a drop for the first time in a year.
Economists point to several factors contributing to the slowdown. Lingering trade uncertainties, shifts in policy, and ongoing labor shortages have all been identified as key contributors to weakening growth momentum. These challenges have followed a tumultuous year for the economy, as businesses have had to navigate fluctuating conditions that have dampened optimism. Despite these setbacks, activity remained above the critical 50 mark, which indicates growth rather than contraction, showing that businesses are still expanding overall, albeit at a more gradual pace.
In addition, the decline in new orders and the dip in manufacturing activity are particularly noteworthy. The slowdown in manufacturing, a sector that has been a strong contributor to the economy in recent years, may signal broader challenges ahead. Analysts will closely monitor these trends, with a focus on the fourth-quarter GDP data, which is expected to offer a clearer picture of the overall economic landscape. The data could provide important insights into whether the slowdown is a temporary blip or part of a more sustained trend.
The Federal Reserve will likely keep a close eye on these developments, as any further weakening in economic growth could influence its policy decisions in the new year. For now, however, the deceleration in business activity signals that, while the economy continues to grow, it may be entering a period of slower expansion, with potential implications for both economic policies and business strategies in 2026.
