Manufacturing is expanding. Input costs are surging. Consumer confidence just hit a historic low. The data isn’t contradicting itself — it’s telling a more complicated story.
EconomyOver the past few months, the U.S. economy has held up better than many expected. March payrolls rebounded to 178,000. Manufacturing has been in expansion for three consecutive months. The Wells Fargo CEO described the economy as “still extremely strong” as recently as April.
But the details underneath are softer. Unemployment sits at 4.3%, partly driven by people leaving the labor force. Price pressures are rising in factories and at the consumer level. And the oil shock has added a new inflationary layer: Brent crude jumped from $66 a barrel in late February to an average of $103 in March, and the EIA now expects elevated prices to persist through 2026, already pushing up fuel, shipping, and input costs across manufacturing and supply chains.
The key is reading these signals together rather than in isolation. Cost pressure, tighter margins, and geopolitical energy risk are complicating the operating environment in ways that don’t show up in the headline numbers.
The ISM Prices Paid sub-index surged from 59 in January to 78.3 in March — a four-year high — with 17 of 18 industries reporting higher input costs. The BLS CPI confirmed the pass-through: gasoline rose 21.2% in a single month, the largest monthly increase on record, accounting for nearly three-quarters of the entire March headline CPI increase. The EIA’s April Short-Term Energy Outlook projects diesel averaging $4.80/gal across 2026.
This is the combination that compresses margins: demand holding, but input costs rising faster than most operations can pass through to customers. Workforce cost is the largest controllable variable in that equation.
Consumer spending has held up so far — savings buffers and tax refund season provided cushion even as confidence collapsed. But economists are warning that gap is closing. As energy prices feed through into more categories — food, freight, manufactured goods — and as tax refund spending fades, households that are already at a sentiment low may begin pulling back on actual purchases.
ISM chair Susan Spence captured where manufacturers currently stand: companies are “holding and will try to keep the same staffing levels or increase overtime.” That is a rational response to today’s conditions. It is not a strategy for what may be coming. An operation built only on current activity readings will be caught flat-footed if demand softens while input costs stay elevated — a margin squeeze with no room to maneuver on the workforce side.
The operations that navigate uncertain periods best aren’t the ones that predicted what would happen — they’re the ones that built workforce architectures flexible enough to respond in either direction.
— Dan Capshaw, Shiftwork Solutions
In a mixed-signals environment, workforce flexibility has specific, practical dimensions.
It means knowing how much of your current coverage depends on overtime versus scheduled headcount — and whether that ratio is intentional. Operations running 15–20% structural overtime have almost no capacity to respond in either direction without pain.
It means understanding your workforce’s actual overtime preferences — roughly 20% want all available hours, 20% want none, and 60% will do their fair share — and designing distribution policy around that reality.
It means having a schedule architecture that can scale up or down without a complete redesign. That’s the same answer whether the second half of 2026 brings continued demand, a consumer pullback, or sustained cost pressure that doesn’t fully unwind until late in the year.
Nobody knows exactly where this goes. The economy may stay resilient. It may be at an inflection point. What’s clear is that input costs are elevated, energy prices will remain a factor through late 2026, and consumer confidence is at a historic low.
Uncertainty is not a reason to wait. It’s a reason to know where you stand.
