Manufacturers have had their heads spinning over the past year adjusting to rapid changes in the economic and policy environment. “Too much uncertainty,” commented a South Dakota home furnishings producer about the economic environment. “Uncertainty has to lower capital expenditures,” said a Wisconsin toolmaker.

Despite that uncertainty, Ninth District manufacturers remained optimistic for 2026, even after 2025 marked the third consecutive year of decreased activity in the region, according to an annual year-end survey conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

Survey results reflect responses from more than 350 manufacturing operations of various sizes randomly sampled across district states. Most survey results can be summarized as an index representing changes in activity over the previous year and expectations for the coming year, in which values greater than 50 indicate expansion, while those below 50 indicate contraction (see Figure 1).

Demand for district manufacturers’ output declined overall; more than 40 percent of respondents reported that orders from customers decreased in 2025, while just over a quarter saw an increase. Exports also decreased, as did investment in plant and equipment. Production and productivity were flat on balance.

Profits were the weakest among business metrics. Half of respondents reported that their profits fell over the year. Since manufacturers overwhelmingly indicated that they increased the prices charged for their products from a year ago, this implies that lower demand and higher input costs outweighed increased prices.

In line with federal data that showed manufacturing employment declined by 78,000 workers nationwide in 2025, staff levels at regional manufacturers also fell, according to the survey. Almost a third of respondents decreased head count at their locations, versus 17 percent who increased staffing. A majority reported that labor availability was unchanged. Wage pressures eased; a majority of firms reported raising wages by 3 to 5 percent in 2025, and more than a quarter raised wages by less than that.

For most manufacturers, the biggest shock in 2025 was the announcement of large tariffs in April and the ever-changing news about their size and scope. “Tariffs have significantly harmed business,” said a respondent in Michigan’s Upper Peninsula. By contrast, a Minnesota respondent noted, “Manufacturing in USA sentiment is great and increasing.”

Responses to a special question about tariff impacts indicated that the biggest effects were on pricing and costs, the impacts on operational decisions were minimal so far. For example, 3 in 4 respondents said that tariffs increased their production costs, and two-thirds said they increased their pricing to customers. Most firms reported little impact on their location decisions or supplier use, though 34 percent said their volume of imported inputs was down (see Figure 2).

However, as in last year’s survey, manufacturers said they expected conditions to rebound in 2026. Overall, they anticipated growth in most business indicators in the year to come, particularly for demand: 42 percent of respondents said they expect orders to increase. Outlooks for productivity and production levels were strong, while investment and profits were expected to remain flat.

Manufacturers also expected to continue to increase the prices charged to customers. Perhaps due to continued input price pressure, 48 percent of respondents expected to raise their selling prices further compared with only 8 percent who expected to decrease them.

The outlook for employment was nearly flat. A slightly higher proportion of respondents planned to increase their workforces in 2026 than those who anticipated layoffs, though most respondents expected no change. Firms expected labor market conditions to persist, as two-thirds forecast no change in worker availability. On average, wages and benefits were expected to increase at a slower pace than last year.

In contrast to the positive outlook among manufacturers for their own operations, expectations for state economies in 2025 were pessimistic. District manufacturers said they expect state employment, business investment, consumer spending, economic growth, and corporate profits to contract over the next 12 months. Inflation remained the largest concern; more than half of respondents predicted an increase in the coming year.