U.S. Factory Activity Slows in November as Inventories Climb Amid Softening Demand

21 November 2025

In November 2025, U.S. manufacturing posted its weakest monthly expansion in four months, as rising prices and a rapid accumulation of unsold goods signalled a looming challenge for growth. The flash reading of the purchasing-managers index for the manufacturing sector fell to 51.9 from October’s 52.5, according to S&P Global still above the 50-point threshold for growth but revealing a clear deceleration in momentum.

Manufacturers reported a sharp decline in new orders, which dropped to 51.3 from 54.0 the previous month, while inventories of finished goods reached their highest level on record. “Manufacturers reported a worrying combination of slower new-orders growth and a record rise in finished-goods stock,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. The implication is straightforward: if demand fails to rebound, the build-up of stock could translate into slower production and weaker hiring ahead.

A primary culprit behind the softness is the effect of tariffs and associated cost pressures. Higher import duties have pushed up input and output prices, prompting some consumers to delay or forgo purchases of manufactured goods. The PMI survey noted that the gauge of input-price inflation rose to 63.1 from 60.0 in October, while the charge for final products increased to 56.0 from 54.7. These pressures are squeezing margins at factories and discouraging investment in new production.

Consumer sentiment is also showing strain. A separate survey from the University of Michigan found that conditions for purchasing long-lasting manufactured goods had fallen sharply, reinforcing how household budgets are being stretched. Declining confidence compounds the risk that elevated inventories will translate into a deeper slowdown.

However, the picture is not entirely bleak. The combined PMI for manufacturing and services the Composite Output Index rose to 54.8 from 54.6, thanks largely to strength in the services sector. The services PMI climbed to 55.0 from 54.8, supported by improved business confidence and expectations of policy support. This divergence underscores the economy’s growing bifurcation: goods output is edging closer to softness, while services remain the engine of activity.

Despite the persistence of growth in services, the manufacturing signal is important because the sector accounts for roughly 10 per cent of the U.S. economy. A sustained weakness here could spill into broader business investment and export performance. Furthermore, because manufacturing tends to lead in cycle-turns, its sluggishness raises doubts about the resilience of the recovery. With inventories already elevated, companies may curb new orders and hiring until demand becomes clearer.

From a policy perspective, the sluggish manufacturing data complicates matters for the Federal Reserve. On one hand, companies are facing cost inflation that could feed into consumer prices; on the other hand, weak new orders and overhang in inventory signal a future drag on growth. The net effect may cause the Fed to remain cautious about cutting interest rates prematurely, even as some businesses express hope for easier monetary conditions.

Regional cost pressures add to the drag. Firms noted that elevated commodity prices, labour tightness, and logistics bottlenecks continued to squeeze margins. While supply-chain delays have begun to ease, the lag persists enough to affect production decisions. Analysts note that when orders fall and stock piles climb, businesses often respond by lowering output, reducing overtime or delaying capital spending all of which have cumulative effects on employment and investment.

Looking ahead, the next few months will be critical. If the soft demand environment persists, inventories may trigger production cuts, setting off a negative feedback loop. Some companies have already begun signalling restraint. On the other hand, a rebound in consumer spending particularly if energy prices or inflation moderate could stabilise manufacturing and clear excess inventory. For now, though, the manufacturing sector appears to be facing a moment of pause, and how it navigates that pause may shape the broader economic trajectory.

In short, the November data reflect a manufacturing sector holding the line rather than accelerating. Good news remains, in that companies are still expanding and services are strong, but the warning signs are there: cooler demand, rising stockpiles and cost pressures create a fragile backdrop. For businesses and policymakers alike, the challenge will be to monitor whether these developments are cyclical blips or the start of something more enduring.