What Impacted Manufacturing Production in March?

US industrial production dropped 0.5% in March 2026, exposing significant procurement challenges as manufacturers grappled with rising raw material costs, energy price volatility and tariff-related sourcing complications that reshape procurement strategies across multiple sectors.

The decline in industrial output, published by the Federal Reserve, coincided with a 0.1% decrease in manufacturing output during the same period. The Federal Reserve's April 2026 Beige Book identified procurement-critical issues including escalating oil and raw material prices alongside persistent tariff concerns that continue to complicate sourcing decisions for US manufacturers.

These developments signal a fundamental shift in how procurement teams approach supplier relationships, risk management and strategic sourcing in an increasingly volatile global marketplace.

Procurement faces raw material cost pressures

According to the Federal Reserve, industrial production fell 0.5% while manufacturing output ticked down 0.1%. The procurement implications reveal deeper sourcing challenges across multiple manufacturing categories.

In March, durable goods production decreased 0.2%, reflecting weaker output of motor vehicles and parts, which fell 3.7%. Declines in primary metals, machinery, furniture and related products further highlighted the breadth of procurement challenges facing manufacturers.

Nondurable manufacturing output edged down 0.1%, with more industry groups posting losses than gains. For procurement professionals, these figures indicate that sourcing strategies built on previous pricing models may no longer be viable.

Some manufacturers reported particularly sharp increases in the cost of steel, plastics and electronics. Materials costs continued to rise, particularly for metals like copper, steel and aluminium with manufacturers citing tariffs as drivers. These price pressures force procurement teams to reassess supplier portfolios and explore alternative sourcing regions.

Supply chain disruption from geopolitical conflict

The Federal Reserve's Beige Book found that the conflict in the Middle East was having an impact on manufacturers' supply chains.

Manufacturers reported concerns that the conflict resulted in shortages of raw materials and energy as well as ongoing concerns around tariffs. For procurement departments, these dual challenges require simultaneous management of geopolitical risk and trade policy uncertainty.

The closure and ongoing uncertainty surrounding the passage of ships through the Strait of Hormuz, which accounted for nearly 34% of global crude oil trade in 2025 according to the International Energy Agency (IEA), has seen oil and fuel prices rise and had a knock-on impact on businesses. Some manufacturers are also dependent on the Strait of Hormuz for raw materials.

Helium, needed for semiconductor manufacturing, passes through the Strait of Hormuz, as does aluminium needed for automotive manufacturing. This concentration of critical materials through a single chokepoint exposes significant vulnerabilities in procurement strategies that lack geographic diversification.

Some US manufacturers reported uncertainty surrounding tariffs and the conflict in the Middle East as their firm's greatest challenge. Some highlighted escalating energy costs related to the conflict, with some describing fuel costs as "skyrocketing". These escalating costs force procurement teams to renegotiate contracts and build more robust price adjustment mechanisms into supplier agreements.

Tariff strategy reshapes sourcing decisions

Since taking office, US President Donald Trump has imposed a variety of tariffs on imported goods. These measures have hit small, medium and large businesses in different ways. They can impact the cost of importing raw materials needed for manufacturing, or the cost of importing goods that are manufactured offshore for sale in the US.

The procurement impact of these tariffs has been substantial across organisations of varying sizes. Ford said in its 2025 Earnings Call that it has taken a roughly US$900mto US$1bn hit as a result of tariffs in 2025. Ford CEO Jim Farley says: "That's a US$1bn higher tariff impact than we communicated just in October due to the unexpected and late year change in tariff credits for auto parts."

According to CNBC, Apple has paid roughly US$3.3bn in tariffs since they were initiated. A February 2026 report from JP Morgan Chase found that monthly tariff payments by midsize firms tripled since early 2025.

For procurement professionals, these figures indicate that tariff mitigation must become a core component of sourcing strategy rather than a peripheral consideration. The unpredictability of tariff policy changes requires procurement teams to develop more flexible supplier networks and consider nearshoring or reshoring options to reduce exposure to trade policy volatility.