Economic Insights

Manufacturing CEO Confidence Improves as Capital Investment Rebounds

Manufacturing CEO confidence improved in August as stronger demand, healthy order backlogs, easing geopolitical tensions, and improving margins gave executives greater confidence that conditions are stabilizing. Manufacturers also reported a meaningful rebound in capital investment plans, although inflation, tariffs, and regulatory uncertainty continue to temper their outlook.

• Current Conditions: Manufacturing CEOs rated current business conditions 5.8/10, up 4% from July and above the 5.5–5.7 range recorded since February.
• 12-Month Outlook: Increased to 6.1/10 from 5.9 in July, reversing part of the previous month’s decline.
• Revenue Outlook: 70% expect revenue to increase during 2026, down slightly from 73% in July.
• Profit Outlook: 77% expect profits to increase, up sharply from 67% in July.
• Capital Investment: 45% plan to increase capital expenditures, up from 37% in July, a favorable signal for future automation and system integration projects.
• Hiring Outlook: 52% plan to increase headcount, up from 42% in July.
• Key Risks: Inflation, tariffs, inconsistent regulation, and supply-chain disruption remain significant concerns, particularly for manufacturers with international operations.

Manufacturing Expansion Remains Strong Despite Moderating Demand

U.S. manufacturing continued to expand in August, although growth moderated from July’s four-year high. Production remained strong, and new orders and backlogs continued to grow, indicating that manufacturers are still working to meet healthy demand. However, slowing supplier deliveries, persistent price pressures, and increased concern about tariffs and geopolitical uncertainty warrant some caution. For system integrators, the overall environment remains favorable, but customers may apply greater scrutiny to new investments as uncertainty and costs increase.

• Manufacturing PMI: Registered 54.6%, while down from 55.6% in July, it marks the eighth consecutive month of manufacturing expansion.
• New Orders: Remained in expansion at 53.7%, although down from 56.7% in July as demand growth moderated.
• Production: Remained strong at 58.3%, essentially unchanged from 58.5% in July and expanding for the tenth consecutive month.
• Order Backlogs: Continued to grow at 51.8%, down from 55.0% in July.
• Customer Inventories: Remained “too low” at 42.8%, generally considered a positive indicator for future production.
• Employment: Remained in modest expansion at 51.2%, down from 52.8% in July.
• Supplier Deliveries: Increased to 59.3%, indicating that deliveries slowed further amid longer lead times and continuing supply-chain pressures.
• Prices: Remained elevated at 71.1% as steel, aluminum, tariffs, and petroleum-related costs continued to pressure manufacturers.
• Industry Breadth: 15 of 18 manufacturing industries reported growth, including five of the six largest industries, demonstrating that expansion remains broad-based.

OUR KEY TAKEAWAYS

Industrial demand remains healthy, although growth moderated in August. Manufacturing CEO confidence improved, and the Manufacturing PMI remained firmly in expansion territory for the eighth consecutive month. While new orders and backlogs grew more slowly than in July, production remained strong and expansion continued across most manufacturing industries.

Capital investment plans rebounded—a favorable signal for system integrators. The percentage of manufacturing CEOs planning to increase capital expenditures rose from 37% to 45%. This suggests that improving confidence, healthy backlogs, and stronger profit expectations are giving manufacturers greater willingness to move forward with investments in capacity, automation, and productivity.

Manufacturers continue to prioritize production and capacity. Production remained near July’s elevated level, backlogs continued to expand, and customer inventories remained too low. Together, these indicators suggest manufacturers must continue increasing output to meet demand, supporting opportunities for system integrators that can improve throughput and operational performance.

Workforce expansion remains measured relative to production needs. Although more manufacturing CEOs plan to increase headcount, the PMI Employment Index remained only modestly above expansion territory and continued to trail production. Manufacturers still need to increase output faster than they are adding workers, reinforcing the business case for automation.

The outlook remains constructive, but uncertainty is increasing. Manufacturing activity remains broad-based, CEO confidence is improving, and capital-investment plans have strengthened. However, slowing demand growth, longer supplier lead times, elevated input costs, tariffs, and geopolitical uncertainty may increase scrutiny of new projects and place greater emphasis on measurable returns.

Services PMI: The Services PMI increased to 55.4% from 54.1% in July, marking the 26th consecutive month of expansion. Business activity and new orders strengthened considerably, supporting continued demand for maintenance, field services, and other recurring service offerings provided by many system integrators.