Factory floors in the world’s three largest economies—China, the United States, and Japan—continued to echo with uncertainty in September 2025, as fresh data revealed ongoing contractions in manufacturing activity, persistent trade tensions, and a global industrial sector struggling to regain its footing.
According to the Institute for Supply Management (ISM), U.S. manufacturing activity shrank for the seventh consecutive month in September, with its closely watched manufacturing index edging up just 0.4 point to 49.1. While this was a slight improvement over August’s 48.7, any reading below 50 signals contraction. As reported by Dow Jones Newswires, this marks the longest such downturn since the pandemic era, and the ISM’s orders index slipped 2.5 points to 48.9, falling back into contraction territory after a brief expansion a month earlier.
“U.S. manufacturing activity contracted at a slightly slower rate, with production growth the biggest factor,” said Susan Spence, chair of the ISM Manufacturing Business Survey Committee, as cited by The Wall Street Journal. But Spence warned that the drops in new orders and inventories outweighed the increase in production, rendering the overall improvement negligible. “August’s increase in new orders seems to have flowed through to production,” she added, but employment remained historically depressed and only one of the six largest manufacturing industries—petroleum and coal products—expanded in September.
The ISM survey painted a nuanced picture. While factory employment shrank less than in previous months, it remained well below historical averages. Eleven industries reported contraction, including wood products, apparel, plastics and rubber, and paper, while just five saw any expansion. Inventories at manufacturers shrank by the most in four months, suggesting producers were able to partially fill the August pickup in orders with existing stockpiles. The ISM’s production gauge did rise 3.2 points to 51, a rare bright spot, and the measure of customers’ stockpiles dropped to 43.7, matching the lowest level in nearly three years—a sign that demand might be picking up.
Inflationary pressures showed some signs of easing. The ISM’s prices-paid measure dropped for a third straight month, to 61.9—the lowest level since the start of the year. Government figures showed prices for goods like appliances, household supplies, recreational goods, and vehicles fell in August, which spurred a 0.7% climb in merchandise spending. Still, tariffs and macroeconomic uncertainty loomed large in the minds of industry leaders.
“Business continues to be severely depressed. Profits are down and extreme taxes (tariffs) are being shouldered by all companies in our space. We have increased price pressures both to our inputs and customer outputs as companies are starting to pass on tariffs via surcharges, raising prices up to 20%,” a transportation equipment executive told the ISM survey. Another respondent in the machinery sector echoed these concerns: “Ongoing macroeconomic conditions highlighted by interest-rate management and tariffs continue to impact customer purchasing decisions, resulting in subdued production rates and growing cost concerns.”
Across the Pacific, Japan’s factory sector fared little better. The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) was revised up slightly to 48.5 in September from a preliminary 48.4, but remained below August’s 49.7. According to Seeking Alpha, this marked the 14th contraction in factory activity over the past 15 months, underscoring the persistent weakness facing Japan’s industrial base. The country’s manufacturers have grappled with sluggish demand, supply chain disruptions, and the effects of global trade disputes, leaving little room for optimism as the year heads toward its close.
China, meanwhile, continued its own manufacturing slog. The official manufacturing PMI, published by the National Bureau of Statistics and reported by the Associated Press, improved to 49.8 in September from 49.4 in August, but still fell short of the 50-point threshold that separates growth from contraction. This marked the sixth straight month of shrinking factory activity—the longest such slump since 2019. A private sector survey by RatingDog was more optimistic, showing the PMI rising to 51.2 from 50.5, but the overall picture remained mixed, reflecting both sluggish domestic demand and lingering uncertainties from ongoing trade tensions with the United States.
“The September PMI reads from China offered a picture that looked less like a coherent growth engine and more like a car with one cylinder firing while another misfires,” observed Stephen Innes of SPI Asset Management, as quoted by WRAL. Companies, he noted, are under pressure from price cutting amid rough competition. “Factories are moving more goods, but they’re being forced to do it at thinner margins, like street vendors selling more bowls of noodles at half price just to keep the crowd coming.”
Still, there were faint glimmers of hope. China’s output accelerated slightly, and both new orders and production showed month-on-month improvements. National Bureau of Statistics chief statistician Huo Lihui noted that the economy is gaining momentum, even as it remains bogged down by a prolonged property sector slump, elevated unemployment, and weak household spending.
The roots of China’s manufacturing malaise stretch back to April 2025, when official PMIs slipped into contraction following an escalation in trade friction with the U.S. administration. A pause in steep U.S. tariff hikes on Chinese goods has been extended until November, and a September 19 phone call between President Trump and Chinese leader Xi Jinping offered “glimmers of hope for improving relations,” according to the Associated Press. A face-to-face meeting between Trump and Xi is scheduled for the end of October in South Korea on the sidelines of the Asia-Pacific Economic Cooperation forum, with the fate of TikTok’s U.S. operations and broader trade agreements hanging in the balance.
Monetary policy has also played a role. This month, the People’s Bank of China left its key lending rates unchanged, even as the U.S. Federal Reserve enacted its first rate cut of the year. Some economists are betting that a rate cut by China’s central bank before year’s end could help spur more spending and investment, but for now, the manufacturing sector’s prospects remain uncertain.
Back in the U.S., the ISM’s Susan Spence pointed out that even as production ticked up, “the combined drops in the indexes for new orders and inventories exceeded the increase in the production index, rendering the overall improvement negligible.” The sentiment was echoed by industry leaders across sectors, from electrical equipment and machinery to fabricated metal products, who cited the ongoing drag from tariffs, inflation, and cautious customer spending.
Japan’s manufacturers, too, are caught in the crosswinds of global trade disputes and domestic headwinds. The 14th contraction in 15 months is a stark reminder that the world’s third-largest economy faces a long road to recovery, with little sign of a quick turnaround.
As the world’s manufacturing giants navigate a landscape marked by trade disputes, inflation, and hesitant demand, September’s data offered little reassurance. The global supply chain might be moving again, but the engines of growth are still sputtering—and policymakers, executives, and workers alike are left wondering when, and how, the industrial sector will truly rebound.
