Year-End Manufacturing Outlook: Trends, Risks, and Opportunities for 2026

Season’s Greetings from your partners at 1st Source Bank!

As 2025 comes to a close, we thank you for your continued partnership and trust. The manufacturing sector has faced some significant challenges as well as some growth opportunities this year—from tariff pressures, onshoring opportunities, to rapid technological transformation—and we’re here to help you navigate what’s ahead. Below are key updates, policy changes, and security reminders tailored for our manufacturing clients and prospects.

Industry Highlights

• Tariffs Continue to Pressure Margins
  91% of manufacturers report higher landed costs due to tariffs, with 85% raising customer prices and experiencing margin compression. Strategic sourcing and cost-control measures will remain critical in 2026.
  Read more on tariff strategies [supplychaindive.com]
• National Security Probe on Industrial Machinery Imports
  The Commerce Department is investigating robotics and industrial machinery imports under Section 232. Potential outcomes could impact sourcing strategies and pricing—stay prepared for volatility.
  Federal Register Notice [federalregister.gov]
• EPA Proposal Could Reduce Compliance Costs
  The proposed end of the Greenhouse Gas Reporting Program may save businesses up to $2.4 billion over the next decade.
  EPA Fact Sheet [epa.gov]

Policy Spotlight: The One Big Beautiful Bill Act (OBBBA)

• Tax Relief: Section 179 deduction raised to $2.5M with a $4M spending cap; permanent 100% bonus depreciation.
• Investment Incentives: Immediate expensing for domestic R&D and new facilities.
• Reshoring Benefits: Tax breaks for reshoring and prioritizing domestic supply chains.
• Labor Considerations: Stricter immigration enforcement may affect workforce availability.
  OBBBA Tax Planning Guide for Manufacturers
  BDO Manufacturing Incentives Overview [rsmus.com] [bdo.com]

Compliance Alert: Indiana Consumer Data Protection Act (INCDPA)

Effective January 1, 2026, the INCDPA imposes strict data privacy obligations:

• Applies to businesses processing data of 100,000+ Indiana residents or selling personal data.
• Requires reasonable security practices and bans processing sensitive data without consent.
• Grants consumers rights: access, correct, delete, portability, opt-out.
• Noncompliance fines: up to $7,500 per violation.

👉 Action Item: Download INCDPA Compliance Checklist
👉 Full Law Text [usercentrics.com] [iga.in.gov]

2026 Outlook for Manufacturing

• Smart Manufacturing & AI: Over 80% of manufacturers plan to allocate at least 20% of improvement budgets to AI and automation.
• Reshoring & Supply Chain Resilience: Domestic investment will accelerate to mitigate tariff volatility.
• Workforce Shortages: Upskilling remains a top priority as talent gaps persist.
• Trade Uncertainty: USMCA review and tariff volatility will keep cost structures unpredictable.
• Tax & Incentives: OBBBA and federal programs will fuel capital investment in facilities and technology.
• Economic Forecast: Moderate U.S. GDP growth (~1.8%) expected, supported by AI-driven productivity gains.

Cybersecurity Reminder: Protect Your Business from Fraudsters

• Never trust caller ID alone—hang up and call the bank directly using a known number.
• 1st Source employees will never ask for sensitive login info or security codes.
• Don’t click on links in texts or emails—navigate to your bank’s site manually.
• Enable multi-factor authentication and/or dual-control on all banking platforms.
• Report suspicious activity immediately to your bank and law enforcement.

👉Common scams and what to look for
👉Protecting Your Business from Ransomware

We’re here to help you navigate challenges and opportunities in 2026. Contact your 1st Source Bank relationship manager for personalized guidance.

Happy Holidays and a Prosperous New Year!