Manufacturing Outlook: 5 Key Strategies for Success in 2025

2024 was a tough year for many in mid-market manufacturing. Stubbornly high interest rates, inflation, and unmaterialized corrections in tax policy (bonus depreciation, R&D, etc.) all took their toll, resulting in flat or negative growth. The soft landing described by economists has yet to materialize for many manufacturing who continue to experience plenty of turbulence.

As we start 2025, consider key macroeconomic trends impacting mid-market manufacturing and practical insights for planning and execution.

3 macroeconomic trends in manufacturing

Positive growth

The American economy continues to be resilient from a macroeconomic perspective. GDP has defied all recessionary expectations since rebounding in the second half of 2022. Analysts anticipate long-term GDP growth trending around 2%.

The election results point to major changes in economic policies in the coming months. Campaign promises related to taxes, trade, and regulations require close monitoring. President Trump has promised to cut spending, while the post-election market rally anticipates tax cuts and lower regulations.

Overall, the outlook for manufacturing is cautiously optimistic, according to recent surveys conducted by the National Association of Manufacturers (NAM). Of 18 manufacturing sectors, 16 anticipate growth in the 1 to 4% range in 2025.

Unlike in the supply-chain constrained months of recently history, however, only a small portion of growth is expected to be driven by price increases. Approximately 60% of manufacturers expect to pass along price increases ranging between 1.7 and 2.6%.

Inflation is anticipated to hover in the 2-3% range; however, Goldman Sachs (and others) predict inflation could pick up another point and slow growth if 10% tariffs on Chinese imports are implemented.

Rising costs

Costs related to labor, health care, energy, and raw materials are all anticipated to increase in 2025.

• 2.7-3.5% = Expected increase in wages in 2025
• 8-9% = Projected rise in health care benefit costs
• 5.3% = Anticipated price increases for raw material inputs. A notable exception is plastic resin, where pricing fell in Q4 of 2024, signaling a buyer’s market.
• 19% = Projected rise in wholesale energy costs between 2025 and 2028

Security

According to the World Manufacturing Report, manufacturing is experiencing a substantial rise in cyberattacks. About 40% of manufacturers have experienced incidents, which has nearly doubled since 2022. The average cost of a breach was just under $5 million. Small and mid-size companies, with smaller staff and IT budgets, are particularly vulnerable. About 29% of companies surveyed were forced to downsize and cut jobs. Manufacturing downtime ranged from a few hours to over 75 days.

Top 5 strategies for 2025

Given a single-digit forecast for growth along with rising costs in 2025, CLA recommends focusing on building resilience in manufacturing. Based on the macroeconomic trends note above, consider these five key strategies in 2025.

Focus on profitability

The days of passing along sizeable price increases are over. In 2025, consider a line-by-line review of your profit and loss (P&L) statement and scrutinize every possible angle for cost containment.

For example, given anticipated high demand and the expected rise in energy pricing over the next few years, consider a fresh look at utility spend to confirm you are charged the correct rates based on your consumption patterns. CLA combines licensed engineers (versed in activities that qualify for savings) with state tax professionals to find potential savings. Request a complimentary assessment. 

Manufacturers are also fine tuning their customer base to replicate the most profitable and provide an early warning as issues arise. This strategy requires data for measuring profitability by customer. To learn how, check out this article: Variances Eroding Factory Profits? Learn How to Manage.

Wring out inefficiency with automation

If you haven’t built or fine-tined a digital roadmap, this is the year.

With costs rising quicker than growth, automation must play a key role. Furthermore, according to the Pew Research Center, by 2028, the shortage of skilled manufacturing workers in the United States will be 2.4 million people. An aging workforce, tightening immigration policy, and skills gap will continue to tighten labor supply.

According to Rockwell Automation’s 9th Annual State of Smart Manufacturing Report, “Manufacturers with annual revenues less than $500 million use only 38% of their data effectively, compared to those with revenues of over $30 billion who effectively use more than half (51%).”

A robust automation strategy can boost your business in numerous ways, by increasing efficiency, improving quality, reducing downtime, faster time to market, tighter inventory control, and much more.

If you are just beginning your journey, this article Answers to Top 3 Questions Manufacturers Have About Digital Strategy is a great way to get started.

If you’re well on your way and looking to take automation to the next level, consider these 7 Strategies to Accelerate Adopting Technology and AI in Manufacturing. 

Upskill the workforce

According to several recent manufacturing surveys, the pace of technology has manufacturers concerned about workforce readiness. Will new hires come prepared? How do we train an existing workforce to embrace it?

At a recent conference dedicated to practical applications of AI and technology in manufacturing, workforce upskilling was a key discussion. Executives reflected on how little we use the technologies we’re implementing. For example, the average person uses a fraction of the potential in a smartphone and even less in common applications like Excel.

In manufacturing, we’re good at early adopting, but less good at operationalizing. Human experience in manufacturing must evolve due to the pace of technology adoption. We learned:

• Focus on workers — make lives better. Innovation will come from unexpected places. Empower those closest to the process (easier said than done). Consider the balance between accountability and responsibility.
• Don’t be blinded by shiny objects — agree on what to measure early. Remind staff everyone must be stewards of financial resources.
• Relationships are key to success. Alignment creates agility and speed.
• Before considering any automation, fix the process first. Confirm the problem to be solved. Don’t automate a bad process. Use simple lean tools like value stream mapping.
• Treat your IT department as a company. Build a P&L — show cost, usage, and return on investment.

Implement a comprehensive security plan

While automation is yielding incredible benefits, these layers of infrastructure open new channels of risk. Human error accounts for most breaches.

As manufacturers embrace smart factory initiatives and the Internet of Things (IoT), they unintentionally broaden their attack paths, making them prime targets for cybercriminals. This risk will only increase as information technology (IT) and operational technology (OT) systems merge, leading to greater interconnectivity (known as the “IT/OT convergence.”)

Key survival strategies include:

• Recurring risk assessments
• Employee training
• Robust security measures, policies, and procedures
• An incident response plan

Information security is fundamentally about safeguarding your business in every aspect, providing confidentiality, integrity, and availability. Take advantage of these resources as you build your plan.

Take advantage of overlooked tax savings programs

Manufacturers want Congress to act on critical tax measures including:

• Reinstating the immediate expensing of R&D,
• Enabling pro-growth interest deductibility standard for business loans, and
• 100% full expensing for capital purchases.

With a razor-thin voting margin in the House and Senate, agreement on any tax provisions will likely take time.

In the meantime, there are several tax savings opportunities that are often overlooked by manufacturers that may be useful in the pursuit of profits in 2025.

• Cost segregation and fixed asset studies — These help you achieve tax savings by accelerating depreciation deductions on qualifying building components.
• Federal Empowerment Zone Credits — These provide an incentive to hire individuals who both live and work in an Empowerment Zone. The credit is 20% of employer’s qualified zone wages (up to $15,000) paid or incurred during the calendar year for services performed.
• Work Opportunity Tax Credits — When companies hire people from targeted categories and employ them for at least 120 hours, they can reduce federal tax liability by up to $9,600 per eligible employee.
• Training and recruitment — There are over 200 state and federal economic development programs supporting workforce development across the country. If you hire eligible workers and they train on-the-job, your company can get reimbursed for up to 50% of the employee's wages while they are training.

As with any tax opportunity, there are key criteria to meet. CLA can help sort through details and assist with filing.

Key takeaways

We expect a bumpy ride to continue in 2025.

CLA recommends focusing on profitability, cost containment, automation, security, and taking advantage of tax savings opportunities to build resilience in 2025. With rising costs, automation will be crucial for increasing efficiency, improving quality, and addressing the shortage of skilled manufacturing workers.

Ready to accelerate results in 2025? CLA can help with that.