U.S. Economy Strong, But Manufacturing Struggles
- The service sector expanded in December, showing resilience and steady growth.
- The manufacturing sector continued to struggle, weighed down by higher costs and uncertainty from tariffs.
- Tariffs introduced last year, intended to boost U.S. manufacturing, have instead led to consistent job losses across the sector.
Key Takeaways
U.S. Economy Holds Steady as Services Grow, Manufacturing Falters Under Tariffs
The U.S. economy showed resilience in December, with the services sector expanding at its fastest pace all year, marking its 10th month of growth in the past 12 months, according to the Institute for Supply Management.
By contrast, the manufacturing sector contracted for the 10th straight month, underscoring the challenges facing producers. Despite tariffs introduced last year by President Donald Trump to shield U.S. manufacturing and spark a “golden age” for industry, the measures have instead raised costs and created uncertainty, leaving manufacturers struggling compared to other parts of the economy.
What Service Sector Growth Means for the U.S. Economy
The steady expansion of the services sector, which represents the largest share of the U.S. economy, signals resilience even as manufacturing continues to falter. Strong performance in services helps offset industrial weakness, supporting overall economic stability and consumer confidence.
While tariffs have weighed heavily on manufacturers, the broader economy remains buoyed by service‑driven growth, underscoring the sector’s outsized role in sustaining momentum.
Tariffs Hit Manufacturing Hard as Services Drive U.S. Economy
Manufacturers continue to struggle with higher costs, weaker demand, and trade policy uncertainty, leaving the sector in decline despite tariffs that were intended to help. One chemical industry manager summed it up: “It has not been a great year…tariffs are ultimately to blame.”
Economists note that the service sector dominates the U.S. economy, accounting for 73% of GDP compared with manufacturing’s 9%. December data showed services employment expanding for the first time since May, while manufacturing shed an average of 9,600 jobs per month since April, according to the Bureau of Labor Statistics.
The contrast is stark: while manufacturing employment has been falling since 2023, services remain resilient, with ISM surveys showing steady growth. Still, tariffs have created ripple effects across both sectors, raising costs and dampening consumer spending.
U.S. Economy Ends 2025 Solidly Despite Tariff Pressures
Food services managers report higher prices tied to tariffs, especially on imports like seafood from Southeast Asia and coffee from South America. These trade policies have disproportionately impacted costs across the sector.
Yet broader data shows resilience: the services sector expanded in December, signaling continued growth. As John Ryding of Brean Capital noted, “The economy may not have ended 2025 on a bang, but it appears to have been growing at a solid pace.”
The Bottom Line
The U.S. economy ended 2025 on solid footing thanks to the services sector, which expanded at its fastest pace all year and now accounts for 73% of GDP. This resilience has offset persistent weakness in manufacturing, which continues to shed jobs and grapple with higher costs, reduced demand, and tariff‑driven uncertainty.
While tariffs were intended to spark a “golden age” for industry, they have instead weighed on both manufacturing and parts of the services sector. Still, the overall economy remains supported by service‑driven growth, giving policymakers and investors confidence that momentum can continue into 2026.
