Trade uncertainty and war abroad could further weigh on manufacturing in Q1 2026, economists say.
Spending on long-lasting goods stagnated in January, and key shipments figures indicate slowing growth in manufacturing.
Headline durable goods orders dipped less than 0.1% in January, while orders excluding the volatile transportation sector rose by 0.4%. However, the production of core capital goods — a key measure of business investment — fell notably from December, according to Friday’s advance report from the U.S. Census Bureau.
January’s numbers trailed the growth expectations of most economists, suggesting that business investment may be losing momentum in the first quarter of 2026. The rise in headline orders and key performance indexes is overshadowed by the Iran war, which is expected to exert upward pressure on manufacturing costs and inflation in the coming months.
Prior to these geopolitical developments, severe weather influenced January’s data. Late in the month, Winter Storm Fern halted manufacturing across much of the U.S. and stifled consumer spending, costing the economy billions of dollars.
Automobile sales, for example, decreased 7.4% between December and January.
“Orders aren’t generally booked until they’re paid, and if shipments were affected by the bad weather, [manufacturers] couldn’t get cars out to dealers,” said Christopher Low, the chief economist at FHN Financial.
Car dealerships around the country were hit hardest by this slowdown. In Queens, N.Y., Koeppel Hyundai was forced to close for a day during the storm, and it took several more for employees to clear the lot of snow.
For those at the dealership, however, bad weather pales in comparison to ongoing pressure from inflation and trade uncertainty.
“Tariffs definitely have increased the price of the vehicles, which has caused some customers to pull the trigger a little sooner,” said CJ Morillo, a senior sales specialist at Koeppel Hyundai. “Some customers are willing to wait a little longer because the car has gotten a little more expensive for them.”
In April 2025, the Trump administration enacted tariffs of 25% on most vehicles and auto parts. Though Hyundai has manufacturing plants in the U.S., the company paid billions in tariffs last year to maintain its inventory levels at dealerships across the country.
The rising cost of vehicles and auto premiums may render those efforts fruitless.
“Two [or] three years ago it was a seller’s market, so it was to our benefit—we had little inventory and a lot of customers buying a car,” said Morillo. “Currently, we have a lot of customers not ready to move forward right away and a lot of cars in stock.”
While retailers face more immediate strain from tariffs, some large manufacturers have shielded themselves from their direct impact over the past year. Now, the Iran war has added a new layer of risk.
In recent weeks, crude oil prices rose 40% due to Iran’s effective blockade of key global shipping channels. If sustained at current levels, this could increase production costs for the manufacturing sector and contribute to inflation across the U.S. economy.
Given the current climate, the Federal Reserve is less likely to cut interest rates in the coming months. This raises concerns about growth in the manufacturing sector, which relies on credit to finance expensive pieces of equipment and machinery.
“Over the course of my career, when the Fed has maintained restrictive policy, manufacturing has always suffered more than the broad economy,” said Low.
Signs of that strain are already emerging in 2026. Shipments of core capital goods — non-defense equipment and machinery used by businesses — fell 0.1% in January. Though seemingly small, this dip is worrisome to Carl Weinberg, the chief economist at High Frequency Economics, Ltd.
“These data are nominal, so the volume of shipments must have gone down by a lot,” wrote Weinberg in an email. “In short, America went to war with Iran with a low rate of realized capital investment.”
