2025 Shapes Up as a Pro-growth and Pro-manufacturing Year

By Dan Janka, President of Mazak Corporation

There is a refreshing sense of optimism and enthusiasm for the new year permeating the manufacturing industry, in particular among job shops. While a number of projects were put on hold in 2024, many are now back in these shops’ production plans for 2025 mainly because of pro-growth and pro-manufacturing policies expected to materialize in the new year.

Also contributing to the optimism and enthusiasm, a large number of OEMs are increasingly reshoring work back to the U.S. This is because of supply chain disruptions stemming from Covid coupled with ongoing global tensions. Both of which compound the risks and vulnerability involved with off- shore manufacturing. Onshore production will also benefit from continued direct foreign investment in the U.S. manufacturing sector.

Many shops held off on capital investments in 2024, mainly because of concerns over the potential elimination of the 2017 tax cuts, a lowering and possible elimination of the accelerated depreciation rate and high interest rates. Combined, those three factors equate to a significant loss of cash flow, especially for small mom-and-pop shops.

Because a lot of job shops are family-owned enterprises structured as limited liability companies (LLCs), they are taxed as an ordinary individual’s income. Any increased tax burden for upper income individuals would, in turn, impact these shops and shift them into higher tax brackets. This would eliminate their ability to invest in new capital. With the incoming administration, most experts believe the 2017 tax cuts will remain in place and become permanent.

Besides tax issues, there was concern surrounding Bonus Depreciation – additional first-year depreciation allowed by the Internal Revenue Service on qualifying business property beyond normal appreciation allowances. Bonus Depreciation decreased to 80% in 2023 from 100% in 2017 and was reduced in 2024 to 60%. Though the allowance is scheduled to decrease yearly to 0% in 2027, some feel the rate may return to 100% in 2025.

Also in 2024, financing issues added to capital expansion worries. Because interest rates remained high for most of that year and banks required personal loan guarantees, shop owners had to secure loans with their personal assets, such as houses and automobiles. While many shops curbed their spending because of this, interest rates have started to fall and will continue to do so in 2025.

Several industry sectors will experience upswings in 2025 thanks to policies favoring manufacturing. Those industries include the oil & gas, mining, construction/infrastructure and agriculture sectors, to name a few. Commercial aircraft and defense spending will also remain robust, as will the medical and semiconductor industries.

However, industry experts will keep a watchful eye on the automotive industry in 2025. Uncertainty surrounds that industry as automotive OEMs decide whether to pursue all electric, hybrid or internal combustion engine type vehicles. Many auto companies that invested billions of dollars in EV have either stopped or pulled back because the market isn’t buying.

On average, North America consumes 17 million vehicles per year. In 2020 during Covid, that amount dropped to around 12 million, and currently it is at a level annualized of about 15.5 million. That’s an average of about 4 million less vehicles consumed per year over the past four years, which equates to 16 million vehicles worth of consumption and production that simply vanished. This results in a stronger aftermarket because the average age of vehicles has increased, which in turn has driven up the used car market.

Along with growth in 2025 will come challenges. Skilled labor in manufacturing is going to remain a problem well into the next decade, with demographics as a key reason. As older employees retire, they take their tribal knowledge with them.  Further, manufacturers will be competing to attract workers from a smaller talent pool than those of previous generations. These two factors will continue to drive the need for investment in automation and the use of digital manufacturing solutions to improve quality, output and more effective use of existing assets.

To further combat the shortage of skilled labor, shops are encouraged to form strong community relations through open houses for young individuals and their parents, partnering with local community colleges and vocational technical schools and establishing co-ops. As a result, interest in manufacturing jobs can grow stronger among the younger workers.

Adding to the skilled labor shortage, the combined costs of existing labor and raw materials has continued to rise, on average, at least 30% over the past few years. Unfortunately, shops are unable to pass these costs onto customers and must turn to automation and advanced CNC machine tools as solutions.

Along with automation and advanced machines, artificial intelligence (AI) is going to be a game changer over the next five years. It will make smart machines and systems even smarter, eventually giving manufacturers the ability to seamlessly go from a 3D model to an optimum part program.

As the cornerstone of the national economy, the U.S. manufacturing industry sector is one that is constantly evolving, integrating new technologies, improving efficiency and adapting to shifting consumer demands and market dynamics. Despite the challenges they will face, this country’s manufacturers will look to 2025 as a year of growth and opportunity fueled by policies that favor the industry.