Orders Flip Positive, Headline Stays Negative: December’s -10.2 vs. a Margin Tailwind Hiding in Plain Sight

From the December manufacturing survey released on 2025-12-17, the headline read “weak activity”—and it wasn’t wrong. The current general activity index fell 9 points to -10.2, marking a third straight negative. Yet in the same breath, the release cheered that new orders and shipments “returned to positive.” True—but only just: orders at 5.0, shipments at 3.2. The report leaned on these green shoots while sidestepping softer forward indicators and an important margin story: prices paid fell 13 points to 43.6 (lowest since June) even as prices received rose 7 to 24.3.

Here’s what the data reveals:
- Headline activity -10.2 (third negative in a row) contrasts with small positives in new orders (5.0) and shipments (3.2).
- Employment index up to 12.9 (highest since May), but 83% of firms report “no change”—hiring breadth is thin; fewer than 1% report decreases.
- Cost pressure eased: prices paid 43.6 (−13) while prices received 24.3 (+7)—a quiet improvement in pricing power.
- Future indicators softened: future general activity 41.6 (−8), future orders 44.0 (−12), future shipments 43.2 (−5), though future capex 30.3 (+5), the best since August.
- Capacity utilization’s median (70–80%) stayed put, but the distribution shifted: fewer firms at 90–100% (11.5% vs. 23.1%) year over year, more in mid ranges.

Headline in the Red, Components in the Green—And that’s the problem
The release emphasizes “returned to positive” orders and shipments, but those levels—5.0 and 3.2—are hardly a counterweight to a general activity index at -10.2. This is the third consecutive month in contraction, now lower by 9 points.

• Employment is the bright spot on the surface: the index rose to 12.9 (from 6.0), the highest since May. But breadth is weak: 83% report no change, 13% report increases, and fewer than 1% report decreases. That’s stability, not expansion.

• The average workweek ticked up 11 points to 14.7, suggesting firms are stretching hours before committing to broader hiring—a classic late-cycle tell.

Margins Quietly Heal: Prices Paid Down, Prices Received Up
The press release’s “both price indexes remained elevated” undersells a meaningful shift: input cost disinflation with firmer output pricing.

• Prices paid: 43.6 (−13)—lowest since June. Diffusion shares: 46% report increases, 2% decreases, 52% no change. That’s a clear step down in cost pressure.

• Prices received: 24.3 (+7). Diffusion shares: 28% report increases, 4% decreases, 68% no change. Firms are getting a bit more for what they sell.

Put simply, costs eased while pricing power improved. That’s margin expansion—the most investable datapoint in the report, and it didn’t get headline billing.

Optimism, But Softer: The First Forward Pullback Since June
The release leans into “expectations for growth,” yet multiple forward metrics slipped.

• Future general activity: 41.6 (−8), first decline since June.

• Future new orders: 44.0 (−12); future shipments: 43.2 (−5); future employment: 27.1 (−8.6). Optimistic levels, weaker momentum.

• Counterpoint: future capital expenditures: 30.3 (+5), highest since August—suggesting firms still plan to invest even as growth expectations cool.

Special questions paint a risk map that the headline narrative mostly ignored:
- Over the next three months, 29.2% expect energy constraints to worsen; 25.0% expect uncertainty to worsen; 20.8% expect supply chains to worsen; 16.7% expect labor supply to worsen.
- Current constraints are largely benign: energy (84.6% “not at all” a constraint), financial capital (100.0%), supply chains (52.0%), labor supply (50.0%). That’s today’s relief with tomorrow’s risk.

Capacity Utilization: Median Flat, Tightness Easing at the Top
The “median unchanged at 70–80%” sounds boring. The distribution is not.

• Year-over-year, fewer firms are running hot at 90–100% (11.5% vs. 23.1%), while mid-range bands absorbed the slack (60–70%: 26.9% vs. 15.4%; 80–90%: 26.9% vs. 11.5%).

• Translation: extreme tightness eased, which aligns with the drop in prices paid and the uptick in workweek rather than headcount—a softening, not a stall.

December at a Glance

And the capacity distribution shift that got buried:

The Spin vs. the Spreadsheet

• “Manufacturing activity appeared weak.” Accurate—but it then pivots to the narrow positives in orders/shipments without acknowledging those small positive levels don’t offset a negative headline.

• “Employment continued to reflect increases.” True—yet 83% of firms didn’t change staffing. Hiring is improving at the margin, not broadening.

• “Both price indexes remained elevated.” Also true—but prices paid fell to the lowest since June while prices received rose. That’s improving pricing power, not static elevation.

• “Future indicators softened but suggest growth.” Also true—but it glosses over the first decline in future activity since June and drops in future orders and shipments.

Netting it out: components improved, margins improved, but headline activity deteriorated and forward momentum cooled.

What This Means for Markets

• Equities—Industrials and select cyclicals: The prices paid down/prices received up combo is a tailwind for firms with pricing power and disciplined costs. Look for companies with evidence of pass-through and stable volumes. The modest rebound in new orders (5.0) helps, but don’t pay for growth that isn’t broad-based.

• Transportation and logistics: Shipments at 3.2 and a firmer workweek (14.7) suggest operational leverage may tick up, but softening forward shipments (down 5 points) tempers the outlook. Favor operators with variable cost structures.

• Capital goods: The capex outlook (30.3, +5) is a quiet positive for equipment suppliers even as near-term activity is soft. Quality balance sheets should outperform as financing constraints remain benign (100% reported capital not a constraint).

• Rates: A negative headline activity read with disinflation in input costs argues for a modest bid in duration. But firmer prices received warns against declaring victory on services inflation. Curve steepening risk remains if margins hold and growth recovers into 1H.

• Commodities and energy: Today’s constraints are muted, but 29.2% expect energy constraints to worsen in the next three months. That’s a watchlist item for diesel-sensitive segments and chemical feedstocks.

Positioning Ideas
- Tilt toward quality industrials with demonstrable pricing power and cost discipline—beneficiaries of the 43.6 prices-paid print paired with 24.3 prices received.
- Favor asset-light logistics and service-heavy manufacturers where rising workweek boosts margins without heavy hiring commitments.
- Maintain neutral-to-modestly long duration; add convexity on dips given softening forward indicators.
- Hedge energy volatility tactically into Q1 given the 29.2% “worsen” risk signal and rising geopolitical premia.

The final word: Don’t let the “returned to positive” headline distract you. The December survey (released 2025-12-17) says activity is still contracting (-10.2), but the margin math improved—lower input costs, firmer output pricing. In this tape, own the businesses that can bank that spread and avoid those that need volume to survive.