The U.S. industrial backdrop is improving as tariff uncertainty fades, OBBA incentives pull forward capex, and rates ease.
Early 2026 data is turning constructive across PMI, manufacturing employment, and regional surveys.
Tema spends a lot of time on the ground, and in February we visited Ohio; our meetings with portfolio companies confirmed the improving top-down picture.
The industrial economy spent much of the last three years in a holding pattern. Today, the tone is changing: Key indicators are stabilizing or improving, and the policy and rate backdrop is becoming more supportive. Taken together, the setup points to firmer momentum through 2026.
The setup for U.S. industrials is improving for three reasons:
Less Tariff Uncertainty: Companies have more confidence that trade rules will be stable—and that planning assumptions won’t be upended quarter to quarter. Even the recent Supreme Court ruling and subsequent actions doesn’t change this picture – peak tariff uncertainty is behind us.
OBBA Incentives: The legislation creates incentives for investment, including 100% bonus depreciation and expanded advanced manufacturing credits, improving project economics.1
Lower Interest Rates: When borrowing costs fall amid greater policy clarity, the improved capex math helps more reshoring projects clear hurdle rates.
As a result of these drivers, several key measures of industrial health are starting to turn positive.
ISM Manufacturing PMI moved above 50, signaling expansion, for the first time in nearly 38 months. One data point doesn’t make a cycle, but we’re encouraged that management commentary is starting to align with the data.
“I think what the remarks that I made is that PMI just turned above 50 in the US for the first time in 38 months or so in January. And we're just saying, hey, that's only one data point. But we're seeing definitely that better momentum and kind of inflecting points.”
—Vicente Reynal, Ingersoll Rand CEO, Earnings Call, Feb 13, 2026
ISM Manufacturing PMI Index has Turned Up
Source: Institute of Supply Management, as of Feb 2026
Industrials often move in de-stocking and re-stocking cycles. When demand improves, inventory rebuilds can create a “bullwhip” effect—amplifying growth across suppliers, distributors, and OEMs.
Manufacturing employment is also beginning to improve after a year of soft prints. We’ve seen false starts before, but the signal is more credible when it’s corroborated by PMI and regional surveys.
Manufacturing Employment Showing Signs of Life
Source: Bureau of Labor Statistics, as of Feb 2026
Regional surveys are strengthening as well. The Cleveland Fed’s SORCE survey—covering a core manufacturing hub and the region we visited—has improved, a useful confirmation that conditions are strengthening.
Cleveland Fed Survey of Regional Manufacturing Business Conditions
Source: Cleveland Fed, as of Feb 2026
The last few years’ cyclical softness has led some to dismiss the U.S. manufacturing renaissance as a mirage. We disagree: The cycle has been weak, but the structural trend is improving. In our view, reshoring and industrial policy helped cushion the post-Covid de-stocking period—extending the downturn, but making it shallower than typical.
As part of our investment process, Tema spends significant time in the field, visiting companies, facilities, and projects. In February we traveled to Ohio, a core industrial hub. The meetings reinforced the improving macro picture and added useful bottom-up color on where demand is strengthening—and what management teams are doing about it.
Timken, a maker of industrial bearings and motion control equipment, recently turned over key leadership (CEO and CFO). On the ground we learned that they are also refreshing their commercial bench—CTO, head of sales, and marketing among them. Our visit also suggested a company preparing to simplify the portfolio and sharpen go-to-market execution. Management is previewing these “complexity reduction” efforts ahead of an investor day in May.
Why does this matter? Timken hasn’t hosted an analyst day in four years. With a solid balance sheet, credible self-help and clearer priorities could be enough to change the narrative. This set up could re-rate the shares if management lays out a concrete plan of going from “good” to “great.”
Applied Industrial Technologies (AIT) is one of the two leading national distributors of flow control, fluid power, and automation equipment. In Cleveland, management noted demand “feels better,” while cautioning against extrapolating from a strong January. More importantly, they flagged early improvement in local projects and smaller customers after years in neutral, evidence that the cycle may be broadening beyond mega-projects.
That broadening matters: Local and smaller-client orders tend to have higher margins. If sustained, the setup supports revenue acceleration and margin expansion over the next several quarters.
“We saw growth across both strategic national accounts as well as our local accounts. Local account sales growth strengthened as the quarter progressed, which is an encouraging signal for broader industrial activity.”
—Neil A. Schrimsher AIT CEO on Earnings Call, 27th January 2026
Our meeting at Parker Hannifin’s Mayfield Heights headquarters reinforced a more constructive view of general industrial demand. Parker sells pumps, actuators, fluid power, and control systems—core components used across factories and capital equipment. Management pointed to improving breadth, including early signs of a turn in off-highway equipment tied to construction and agriculture. This confirmed their latest updated view during earnings season.
Site visits also surface underappreciated drivers. We focused on filtration, where a recent major acquisition positions Parker as a scaled player in a structurally attractive, higher-margin category. This is an area we think is still missing appropriate investor attention.
If the industrial cycle is turning, the market’s focus often shifts quickly from “when does demand return?” to “who has operating leverage and the cleanest path to margin expansion?”. Easing policy uncertainty, incentive-driven capex, and lower rates can move projects off the sidelines, supporting a multi-quarter recovery in orders.
Our Ohio meetings add an important confirmation: Improvement is starting to broaden beyond mega-projects into local and smaller-customer demand, which can be especially supportive for distributors and automation suppliers. Companies that spent the downturn improving their business or have credible self-help and portfolio simplification plans tend to see the most earnings power in such an environment.
For investors seeking exposure to improving industrial growth, Tema American Reshoring ETF (RSHO) invests in companies positioned to benefit from a potential resurgence in US manufacturing, industrial activity, and infrastructure development. Timken, Applied Industrial Technologies, and Parker Hannafin are all holdings in our portfolios. Portfolio holdings are subject to change. For a full, up to date list of holdings, visit the RSHO fund page.
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