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Factories Are Cooling, But The Productivity Cycle Is Heating Up

Author

Noah Zelvis
February 08, 2026

US manufacturing is not collapsing, but it is clearly not in a boom. Jobs have been fading, activity has spent a long stretch in contraction, and the tariff strategy is acting less like a magnet for factories and more like sand in the gears.

The upside is that this kind of backdrop tends to create a very specific playbook for companies: invest in productivity, protect margins, and delay big bets until policy fog clears. 

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The headline is simple: manufacturing is in retreat, and tariffs are not delivering the clean boost that was promised.

A few threads are doing the damage at the same time:

  • Employment is sliding. Manufacturing payrolls have been shrinking for months, and the longer that runs, the more it signals caution on demand and investment.

  • Activity has been stuck below cruise altitude. The factory cycle has been in a long contraction phase, even if some subcomponents occasionally bounce. That is stabilization, not a renaissance.

  • Tariffs are raising costs before they raise capacity. If a manufacturer relies on imported inputs, tariffs can show up fast in materials bills. The hoped-for benefit, more domestic supply and more domestic investment, tends to show up slowly, if it shows up at all.

  • Uncertainty is the silent killer. Stop and start tariff threats make executives treat investment like a risk, not an opportunity. Even firms that want to reshore have to plan around timelines measured in years, not headlines measured in days.

  • Productivity can rise while jobs fall. More automation and better processes can stabilize output without expanding headcount. That is good for margins, but it is not great for job creation.

So the real setup is not a return to a golden age of factory hiring. It is a shift toward doing more with fewer people, fewer mistakes, and less wasted inventory. In this regime, the best businesses are the ones that sell tools, workflows, and services that keep production running, even when the mood is defensive.

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Actionable Stuff

  • Position for efficiency, not a hiring boom. Favor businesses that help factories automate, reduce scrap, and keep lines moving.

  • Own the keep-it-running economy. Maintenance, repair, and operating spend is harder to cut than growth capex.

  • Look for pricing power tied to value delivered. If a product saves labor hours or reduces downtime, customers tolerate pricing better.

  • Avoid the most tariff exposed margin stories. Companies that cannot pass through input costs can look fine in revenue and ugly in earnings.

  • Watch capex signals. When policy uncertainty fades, the rebound usually shows up first in orders for automation, electrical gear, and plant upgrades.

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Top Picks

Rockwell Automation (NYSE: ROK)

If manufacturers are not adding bodies, they are more likely to add automation. Rockwell is a direct play on factories upgrading controls, software, sensors, and systems that reduce labor intensity and improve throughput.

In a tariff heavy environment, the easiest margin defense is productivity, and that usually means modernizing the line rather than expanding the payroll.

What to watch: Order trends tied to discrete manufacturing, management commentary on project timing, and backlog stability.

Eaton (NYSE: ETN)

Even in a soft factory cycle, electrification and reliability spending tends to persist, especially for plants, data centers, and critical infrastructure.

Eaton can benefit from the practical side of reshoring and retooling: power distribution, safety, and equipment that makes facilities more resilient and efficient.

If investment is cautious, it often shifts toward upgrades that pay back quickly through uptime and energy savings.

What to watch: Electrical segment demand, backlog quality, and any signals about industrial project pipelines.

Fastenal (NASDAQ: FAST)

When manufacturers pull back on big expansion, they still buy the basics to keep production running.

Fastenal sits in the keep-it-running lane through fasteners, consumables, and on-site inventory programs that reduce stockouts and improve procurement discipline.

In a slower cycle, procurement teams tend to consolidate vendors and prioritize reliability. That can favor scaled distributors with embedded customer relationships.

What to watch: Daily sales trends, customer count and Onsite adoption, and gross margin resilience as volumes fluctuate.

Emerson Electric (NYSE: EMR)

If the short-term reality is higher costs and uncertain demand, process automation becomes a weapon. Emerson plays in measurement, control, and automation that helps operators improve yields, reduce downtime, and run leaner.

It is also a way to stay in the manufacturing theme without needing a surge in new factory hiring. The value proposition is operational performance, not optimism.

What to watch: Automation order momentum, exposure to energy and process industries, and signals on customer ROI driven upgrades.

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Bottom Line

Manufacturing is not getting the tailwind it was promised, and tariffs are creating real near-term friction through costs and uncertainty. The investable angle is not guessing when factories reaccelerate. It is owning the companies that benefit when executives respond the same way they always do in this environment: spend on productivity, protect margins, and keep operations tight.

If you want, I can also swap these picks to only mid-caps, or tilt them toward direct beneficiaries of any eventual reshoring capex wave.

That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.

Best Regards,
—Noah Zelvis
Macro Notes