:max_bytes(150000):strip_icc()/GettyImages-2254298356-8c76cc8a9f0a4bf498cf8fff917c0c78.jpg "The Economy Is Going Fine—Except For People Who Make Stuff")
:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2254298356-8c76cc8a9f0a4bf498cf8fff917c0c78.jpg)
Key Takeaways
- The service sector expanded in December, while the manufacturing sector struggled.
- Manufacturers have been hit hard by tariffs, which have raised costs and created uncertainty.
- Tariffs put in place last year were meant to boost manufacturing but, have instead led to consistent job losses so far.
It’s tough out there for anyone in the business of making things, but the rest of the economy is hanging in there
The services sector of the economy expanded at its fastest pace all year in December, while manufacturing continued to struggle, according to a pair of reports this week from the Institute for Supply Management. The service sector logged its 10th month of growth over the last 12 months, the ISM said Wednesday. The manufacturing sector on the other hand slowed down for a 10th straight month, according to a Monday report.
The pair of releases, based on surveys of supply managers, highlighted how much manufacturers have struggled this year compared to other parts of the economy under the regime of tariffs that were actually meant to help them. President Donald Trump imposed far-reaching import taxes last year in an effort to shield U.S. manufacturing from competition and introduce a “golden age” for industry.
What This Means For The Economy
The continued expansion of the service sector bodes well for the health of the economy despite struggles in manufacturing, because the services sector is by far the economy’s largest.
Instead, manufacturers have grappled with increased costs, reduced demand, and uncertainty about rapidly changing trade policy.
“It has not been a great year,” one manager in the chemical business told ISM. “We have had some success holding the line on costs; however, real consumer spending is down and tariffs are ultimately to blame. I hope for some return to free trade, which is what consumers have ‘voted for’ with their spending.”
Economists divide the economy into resource extraction (including farming and mining); government; manufacturing, or companies that make stuff; and services, which includes housing, healthcare, education, and most everything else. The service sector is by far the largest, making up 73% of the economy as measured by Gross Domestic Product, compared with manufacturing’s 9% share.
And while the manufacturing outlook deteriorates, the services sector is chugging along according to the ISM. Employment in services expanded in December for the first time since May, the ISM said. That’s a distinct contrast with manufacturing, which has lost an average of 9,600 jobs every month since April according to the Bureau of Labor Statistics. Manufacturing employment has been declining since 2023, the data shows.
“Despite continued weakness in its counterpart survey on manufacturing, the service sector has proven resilient,” Brian Wesbury, chief economist at First Trust, wrote in a commentary.
Despite the overall positive outlook, tariffs have also affected the service sector.
“We continue to experience higher prices, primarily due to the impact of the administration’s trade and tariff policies,” a manager in the Food Services Industry told ISM. “We are disproportionately impacted by importing seafood from Southeast Asia and coffee from South America.”
Still, taken together with other recent data, the expansion in services suggests the overall economy is still growing.
“In total, the economy may not have ended 2025 on a bang, but it appears to have been growing at a solid pace,” John Ryding, chief economic advisor at Brean Captial, wrote in a commentary.
