Manufacturing Overview: Orders climb across major markets while input costs stall margins and idle capacity comes into focus

The AlixPartners Manufacturing Overview: CY2026 – Q2 is now available, providing an analytical look at the sector's performance as demand strengthens across major markets while elevated input costs continue to compress margins.

This quarter reveals a conversion problem, not a demand problem. New orders climbed across the United States, Germany, and China, with exports from Germany and China returning to pre-2025 levels, yet revenue growth across nine of eleven industry groups produced almost no margin expansion as raw material, energy, and freight costs absorbed the gains. Capacity utilization remains below long-run averages in both the US and China, leaving the 2022 to 2024 capacity build as a fixed-cost overhang rather than an advantage.

Performance diverged sharply by geography. The United States posted the strongest order book in the series at $660 billion, led by AI-driven demand with core capital goods up 14% year over year, though growth is narrow and capital is rotating away from plant construction toward data centers as CHIPS Act subsidies wind down. Germany improved on a record quarter for export volume and a fifth consecutive quarter of rising utilization, but production still sits below prior-year levels and business sentiment slipped as energy prices rose. China delivered unbalanced growth concentrated in high-tech and equipment manufacturing, with export delivery up nearly 11% even as overall capacity utilization fell to an eight-quarter low and foreign investment contracted.

Labor scarcity has shifted from headcount to skills. US manufacturing added jobs while total payrolls declined, and openings jumped 21% to 498,000 as roughly 1.8 million workers approach retirement within five years. German headcount fell for a seventh straight quarter while wages reached €45.10 per hour, well above the EU average, and productivity gains only just matched wage growth. Employers are paying premiums for talent they cannot source, and benefits costs are now rising faster than wages.

A critical question is emerging around where additional capacity should come from. With nonresidential construction costs up roughly 43% since 2020 and greenfield projects still taking 24 to 48 months before the first unit ships, the report includes a focused analysis on bottleneck analysis and why the gap between perceived capacity and actual system potential commonly runs 5 to 10% or more in large automated environments. Explore the full report below or download it here.