Manufacturing Contraction Slows While Services Continue to Decline in the US: Mixed Signals from Richmond Fed Survey

Washington | EcoPulse24

The latest Richmond Federal Reserve survey reveals a mixed performance for the US Fifth District economy in December 2025. Manufacturing contraction slowed, with the Richmond Manufacturing Index rising to -7 points from -15 in November, in line with expectations, signaling a slower decline in industrial activity. Contributing factors included a less severe drop in new orders (-8 vs. -22), a slight improvement in shipments (-11 vs. -14), and slower depletion of order backlogs (-7). Industrial employment nearly stabilized (index at -1 from -7), while the wage index remained strong at 24 points, indicating ongoing cost pressures. Future expectations improved, with firms more optimistic about new orders (28 vs. 25) and overall activity.

In contrast, the services sector continued to contract for a second month. The revenue index fell to -6 from -4, and the demand index slipped to -3 from +4 in November. However, some support was seen: current business conditions improved slightly (-11 from -15), and current employment rose (5 from 1). Yet, future employment expectations declined (14 from 24), reflecting business caution. Wage pressures persisted as the services wage index rose to 17 from 12, and firms expect further wage increases over the next six months. Price growth for both inputs and outputs accelerated slightly in December, although companies anticipate slower price increases in the coming year.

Overall, Richmond data depicts a two-speed US economy: manufacturing shows gradual stabilization amid improving demand, while services face ongoing revenue and demand pressures. Wages remain a common source of cost pressure. These trends are significant for monetary policymakers evaluating the path of inflation and economic activity as 2026 approaches.