Manufacturing in 2026: Signs of renewal amid ongoing complexity

After several years of contraction, the U.S. manufacturing sector is entering 2026 with renewed momentum. Early year indicators show meaningful shifts in demand, investment behavior and production trends, movements that have important implications for manufacturers of all sizes. While the only certainty is uncertainty and there are still pressure points, particularly around supply chain and input cost volatility, the overall direction suggests a sector moving from stabilizing to strengthening. Nationwide® recently analyzed economic conditions in the manufacturing sector and the events and key factors driving current and future trends. 

A shift toward expansion

The start of 2026 marks a potential turning point for the manufacturing economy. After an extended period of suppressed demand and contraction throughout 2025, the ISM Manufacturing Index climbed above 50 in January, signaling a return to expansion territory. Production accelerated, input cost pressures eased, and – perhaps most importantly – new orders rose sharply, indicating healthier demand pipelines across multiple subsectors.¹ 

These signs suggest that, after years of flat or declining activity, many manufacturers may begin seeing higher levels of throughput and revenue exposure as 2026 progresses. New orders for core capital goods also accelerated in late 2025, reinforcing expectations for broader industry growth.

While tariff related cost pressures are still present, their most acute impacts appear to be fading as firms adapt to new sourcing strategies and production processes. Combined with incremental demand recovery, these factors position the sector for modest but meaningful expansion. 

Capital investment rebounds with technology at the core

Capital spending is expected to be a defining theme of 2026. Enhanced tax incentives under the One Big Beautiful Bill Act (OBBBA), including 100% first-year bonus depreciation and expanded write-offs for factory upgrades, are prompting many manufacturers to reevaluate investment plans.¹ 

A significant portion of this new investment is tied to technology, automation and AI-related infrastructure. Across manufacturing segments, companies are increasingly prioritizing equipment upgrades, robotics, sensor driven systems and advanced computing capabilities. Evidence of this shift can be seen in: 

• Computer and electronics: Massive private sector spending on AI infrastructure is pushing demand for memory chips, servers and related components. Input costs for certain electronics have surged as manufacturers shift toward AI-optimized components.¹
• Machinery: Orders rose sharply in 2025 and are expected to strengthen further as OBBBA incentives and AI-related construction projects require extensive machinery purchases.¹
• Fabricated metals and primary metals: Firms are leaning more heavily into automation to offset elevated labor and input costs.¹ 

As more facilities adopt advanced technologies, the typical manufacturing footprint continues to evolve, leaning toward higher levels of automation, data connectivity and digitally driven operations. Many plants are beginning to resemble the technology enabled persona commonly associated with modern, leaner manufacturing environments. 

Supply chain volatility persists

Although manufacturers have adjusted to many of the tariff driven challenges of recent years, supply chain stability remains a notable concern. Input costs remain elevated for several sectors, and supplier delivery times are still slower than historical norms. Tariff impacts are uneven, with significant cost increases in metals such as copper, steel and aluminum due to tariff rates reaching as high as 50%.¹ 

Geopolitical uncertainty and shifting trade relationships further complicate sourcing strategies. For example: 

• Metal manufacturers continue to grapple with tight aluminum supplies following both tariff impacts and a major mill disruption in late 2025¹ 
• Semiconductor supply is again tightening as AI demand surges, contributing to renewed production constraints in automotive manufacturing¹

Given these conditions, the emphasis on business continuity planning and supply-chain diversification has only grown. With costs, lead times and availability still vulnerable to disruption, manufacturers remain in a risk environment that requires proactive resilience strategies.

Subsector spotlights: Uneven recovery across the industry

While overall outlook indicators are improving, individual manufacturing subsectors face distinct conditions: 

• Automotive: Production held steady through 2025 despite tariffs and elevated costs. Risks remain, especially with ongoing trade negotiations and semiconductor shortages, but consumer demand may strengthen in 2026.¹  
• Plastics: Input costs are rising due to new recycled-content regulations, and inventories remain elevated. Domestic producers may see some benefit from tariff-driven demand shifts.¹ 
• Printing and paper: Demand continues its long-term decline, exacerbated by destocking trends and digital substitution. Niche markets offer isolated growth opportunities.¹  
• Furniture: Elevated tariffs have increased production costs without producing meaningful demand increases. A recovering housing market later in 2026-2027 may help.¹ 

Taken together, these variations highlight the continued importance of sector-specific monitoring and exposure assessments as each industry responds differently to cost pressures and economic shifts. 

What this means for the market in 2026

Overall, the manufacturing sector enters 2026 on firmer footing than in recent years. A combination of strengthening demand, tax-incentivized investment, easing tariff pressures, and ongoing AI-driven capital expansion offers a cautiously optimistic outlook.¹ 

However, this recovery is not without complexity. Manufacturers still face meaningful challenges around supply chain stability, cost volatility, labor constraints and employee safety, all of which can impact production capacity, margins and long-term planning.

For stakeholders across the manufacturing ecosystem – whether carriers, agencies, brokers or supporting services – the key themes shaping the year include: 

• Exposure basis is beginning to rise as production and new orders recover 
• Regular property replacement cost evaluations will be important as the costs of building materials and labor rise 
• Greater technology integration will reshape operational risk profiles and capital investment strategies as well as create the potential for safer working environments 
• Continued supply-chain unpredictability heightens the need for resilience and business continuity planning 
• Divergent subsector performance creates varied market pressures and opportunities 

The sector’s trajectory for 2026 suggests measured improvement with an eye toward modernization. Manufacturers that adapt to cost challenges, leverage incentives and embrace technological evolution will be best positioned to navigate the next phase of industry growth. 

How Nationwide is preparing for this year and beyond

We have resources dedicated to staying current with trends impacting the ever-changing risk landscape for manufacturers. As a result, our underwriting, risk management and claim expertise are positioned well to respond and provide coverage and services that meet the needs of manufacturers, now and in the future. 

Read our full Manufacturing Trends & Outlook report, and explore manufacturing insurance that can help with challenges such as supply chain disruptions.