American Manufacturing: A Boom on the Horizon
It’s becoming harder to ignore the significant rise in American manufacturing.
Back in February, we discussed how many analysts were nostalgic for the manufacturing growth during President Trump’s term. They tended to focus on employment numbers while missing the larger indicators like production levels, orders, shipments, as well as capital spending and productivity.
In a tight labor market, wage growth isn’t necessarily the best gauge of a sector’s health. With low unemployment and high prime-age participation, total employment can only grow as fast as the labor force. This sets up a scenario where companies are vying for workers, often pushing wages up more than salaries, prompting businesses to invest in capital to boost existing employee productivity.
And we’re seeing that unfold. In the first quarter, nominal hourly pay within the manufacturing sector rose at an annual rate of 6.1%. When adjusted for inflation, pay increased by 2.5%, according to the Bureau of Labor Statistics. Year-on-year, nominal wages went up by 5.5%, with real wages climbing by 2.7%. In durable goods manufacturing, compensation saw an even more impressive increase—7.7% compared to the end of last year and a 6.4% rise versus the first quarter of 2022. Actual pay increased 4% from the previous quarter and 3.6% year-over-year. Labor productivity saw a 3.6% boost in manufacturing, with output reflecting a 3.3% increase. Durable goods fared even better, enjoying a 5.3% rise in productivity and a 5.4% rise in output.
It’s not that wages are stagnating. Payroll numbers in durable goods have been on the rise every month this year, even in February when overall salary changes were negative. The recovery in manufacturing jobs since last year’s downturn can be linked directly to improved efficiency and deeper investments. These capital investments enhance worker value and, in turn, encourage factories to compete aggressively for labor.
Around the same time we were promoting this manufacturing boom concept, Jared Woodard from Bank of America made similar observations, describing it as a “new industrial cycle.” He advised investors to shift their focus away from the usual stock market patterns centered on large tech firms and low inflation, towards more tangible assets like factories, capital equipment, and commodities.
The Surge in Demand for U.S.-Made Durable Goods
The signs are becoming increasingly clear.
The latest reports on durable goods orders show that core capital goods orders—excluding defense and aircraft—rose by 6.7% year-over-year in the early part of this year, with a 3.3% increase in March alone. Woodard pointed out that core capital goods orders hit a record high of $83 billion in March, marking a 6.7% uptick for the year.
The specifics are even more striking. Industrial machinery orders have surged by 30% year-to-date. Additionally, orders for turbines, generators, and power transmission equipment are up by 8.5%, while ventilation and refrigeration equipment saw a rise of 15.8%. Computers experienced a notable increase of 19.4%, and non-defense communications equipment orders soared by 26.1%.
Bank of America observed that mentions of “weak demand” among companies have fallen to levels that suggest an ISM manufacturing index above 55—indicative of a booming sector. Ed Yardeni, president of Yardeni Research, recently forecasted an 18% year-over-year gain for the S&P 500 index in the first quarter of 2026, with a 24% annual profit increase expected as well. Yardeni characterized such growth expectations as “unprecedented,” particularly outside of a post-recession context. Analysts from Bank of America supported this claim, noting that the S&P 500 earnings growth for the first quarter reached 26%, or 18% when excluding significant one-off gains from some major tech and telecom firms.
If you’re skeptical, consider the recent inventory and shipping data. In March, shipments from manufacturers saw a 1.4% increase, which translates to a 5.5% month-over-month rise and a 5.5% increase compared to the same month last year. Manufacturer inventory also grew—up by 0.6% from the prior month and 1.3% year-on-year. Factories are not only ramping up shipments but also expanding their inventories.
Interestingly, sales are growing faster than inventories. The manufacturing inventory-to-sales ratio for March stood at 1.51, a reduction from 1.52 in February and down from 1.57 a year prior. This trend is a very positive sign.
There are indications that demand is currently outpacing supply. Recently, we highlighted potential price increases indicated by the Producer Price Index. Intermediate demand—referring to prices for switchboards and control equipment—rose by 12.1% year-over-year. Median demand prices for electrical equipment surged by 27.6%, and computer storage costs increased by 20.2%. Broadly, prices for capital goods in manufacturing rose by 5.2%.
However, this type of “inflation” shouldn’t be seen negatively. Importantly, it’s not the consumer inflation that pressures the Federal Reserve. More crucially, these price increases signal rising demand, which attracts more investment to bolster supply to fulfill that demand. Ultimately, higher prices can motivate more supply, and it seems supply is starting to catch up. Data indicates that the production of electrical equipment and appliances increased at an annual rate of 12.2% in the first quarter. Meanwhile, machinery production climbed by 6.3%. Computer and peripheral manufacturing saw utilization rates rise to 81.5% in Q1, representing the highest level since the tech boom before the century turned.
Growing Margins for Capital Goods
The PPI report also shed light on the gains stemming from all this activity. In April, profits from private capital equipment trade services—a measure of earnings for distributors—rose by 3.8%, up 12.3% from the previous year. Manufacturing trade services increased by 0.6% in April and by 6.8% year-over-year. The net output prices in manufacturing rose by 2.9% from the previous month, and by 9.1% compared to the same month last year.
While these indicators might not measure corporate profits perfectly, as they reflect margins for wholesalers rather than net profits, they’re still quite significant. They suggest that supply chains for capital equipment are not only moving more goods but also benefiting from better margins.
Bank of America analysts are observing similar trends. Caterpillar has reported a record backlog of orders, with power equipment bookings stretching as far as 2028-2029, and demand in engineering and construction continues to grow. Trucking demand is exceeding BofA’s growth signals, capacity remains tight, and spot trucking rates are climbing, indicating improved margins once shipping volumes fully recover.
These are the metrics that investors should focus on: orders, shipments, inventories, production volumes, utilization rates, margins, backlogs, transportation costs, and profits. The outlook is very optimistic. Manufacturers are boosting shipments while rebuilding inventories without oversaturating the market. Demand for capital goods is robust, margins in that sector are expanding, and corporate profits are on the rise. Wall Street is beginning to grasp that the industrial sector isn’t declining.
In fact, it appears to be heating up.
