The November 2025 ISM® Manufacturing PMI® Report delivered a Manufacturing PMI® of 48.2%. This level below 50 signifies contraction in manufacturing. The Manufacturing PMI® is in its 9th straight month in contraction and 35th month of contraction in the past 37 months. January and February of this year were the only two months of growth over this timespan. Fortunately, manufacturing is not weak enough to drag the entire economy into contraction. According to ISM, a Manufacturing PMI® above 42.3% “over a period of time” is consistent with an expanding economy. In fact, “the past relationship between the Manufacturing PMI^® and the overall economy indicates that the November reading corresponds to a 1.7% increase in real gross domestic product (GDP) on an annualized basis”.

Unfortunately, the ongoing contraction in manufacturing has not cooled off inflationary pressures. Currently, higher steel and aluminum prices have cascaded through the manufacturing value chain. Tariffs on imported goods have created additional cost burdens. The ISM^® Prices Index increased month-over-month from 58.0% to 58.5%. The Prices Index is also up 6 percentage points year-over-year and has increased for 14 straight months. 

Perhaps tellingly, Computer & Electronic Products was one of four industries that grew in November. I assume the rush to implement AI across enterprises and government is providing this push. For example, Dell Technologies (DELL) reported exceptionally strong demand for AI servers. From the transcript of the recent Q3 2026 earnings call: “AI server demand remained exceptionally strong. We booked $12.3 billion in orders in the quarter, bringing year-to-date orders to $30 billion, both record figures. The large-scale customer base continues to broaden with expansion across neo-cloud or Tier 2 CSPs and sovereigns”.

With manufacturing locked in contraction and services still carrying economic growth, the divide between these two sides of the economy has become central to understanding today’s stagflationary pressures. Input costs continue to rise even as new technologies reshape demand patterns. The expanding adoption of AI could influence productivity and cost structures in unexpected ways. How these pressures resolve in 2026 will be essential to tracking whether stagflation persists, begins to unwind, or takes on a new form altogether.

Full disclosure: long DELL

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“Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, and inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras and smartphones…
…Wages in China have risen by more than 50 percent since 2005, analysts say, and this year many factories, under pressure from local governments and workers who feel they have been underpaid for too long, have raised wages by an extra 20 to 30 percent.”

Manufacturers in China are already moving production away from the traditional electronic hub in Shenzhen to lower-cost regions in the country.

The article goes on to reveal that the lowest cost components on the iPhone come from the manufacturing and assembly of the various electronic components. This low-margin business is getting tougher and tougher and growing out of favor:

“…there is growing skepticism about China’s manufacturing model after years of pressing workers to toil six or seven days a week, 10 to 12 hours a day.”

Expect soon to pay more for Chinese-made goods at a store near you.

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