As 2024 draws to a close, the manufacturing sector is at a complex crossroads, shaped by evolving economic conditions and a shifting policy landscape. Surveys from major regional agencies across the Midwest show lingering uncertainties about future trade policies and tariffs. Though supply chains have largely recovered from the pandemic and inflation has moderated, manufacturers remain cautious and are stockpiling materials.
The United States Manufacturing Purchasing Managers’ Index (PMI), an economic indicator that measures the health of the national manufacturing sector, reached 48.4 in November 2024, an improvement from October’s reading of 46.5. Readings above 50 signal expansion while those below signal contraction. The latest figure shows that the manufacturing sector is stabilizing with slower declines in new orders and increased hiring activity. Business optimism has also risen following the presidential election, while input cost inflation hit a one-year low despite higher output prices.
As we look ahead, the key question is whether these early signs of stabilization translate into sustained growth for the manufacturing sector in 2025, or are manufacturers right to maintain their cautious stance amid ongoing global economic uncertainties?
Regional picture contains positives and negatives
Regional manufacturing surveys paint a more nuanced picture than the national data. In Minnesota, manufacturing confidence has dropped to its lowest levels since 2008. A concerning 56% of respondents to Enterprise Minnesota’s State of Manufacturing survey1 in the late summer indicated a worsening business climate in 2024, up from 50% the previous year and dramatically higher than the 15% reported five years ago.
The Minnesota survey highlighted significant challenges as well, with only 24% of manufacturers expecting revenue increases and 21% anticipating higher profitability in 2024. Hiring also reached historic lows, with just 42% of manufacturers actively seeking new employees. Survey respondents identified inflation (33%), rising material costs (30%) and workforce issues (27%) as their primary concerns, while 68% anticipated negative impacts from new paid family leave requirements in the state.
In neighboring Wisconsin, the state’s Center for Manufacturing and Productivity reported similar challenges in a survey conducted earlier in the summer2. Workforce concerns dominated their findings, driving increased investments in technology and employee development programs. The survey revealed an acceleration in technology adoption, with 33% of manufacturers either using, considering or expecting AI implementation in their operations, up from 23% in 2023.
Interestingly, while 39% of Wisconsin manufacturers viewed the economy as slowing or in recession, many maintained optimism about their individual company prospects. The survey also noted that despite economic slowdown creating excess production capacity, manufacturers actively pursued new customer acquisition, with smaller companies finding particular success through word-of-mouth marketing.
North Dakota’s manufacturing sector has shown resilience3, supported by both local initiatives like Automate ND advanced manufacturing investments and national legislation including the Inflation Reduction Act and the CHIPS Act. Manufacturers in the state are addressing challenges through digital transformation and innovation, despite facing job cuts and reduced hiring.
Broader economic conditions impact manufacturing
While the manufacturing sector has struggled in the post-pandemic years, overall economic strength points to a potentially brighter future. In the past year, inflation has continued moderating from its peak 2022 levels, moving closer to the Fed’s 2% target. The most recent consumer price index (CPI) showed that prices are 2.7% higher than they were a year earlier. While there is still progress to be made on inflation, the Fed has started cutting rates and will likely continue to do so in 2025, providing relief to businesses and consumers. This is a welcome development for manufacturers who can benefit from improved borrowing costs.
The economy has also remained strong with the most recent gross domestic product (GDP) report showing that it grew at an annualized rate of 2.8% in the third quarter of 2024. Consumer confidence and retail spending are both strong, which helps drive demand for goods, allowing factories to operate at fuller capacity and potentially expand production. Manufacturers can also benefit from improved pricing power when demand is robust, while also having more resources to invest in automation and workforce development.
Despite challenges, industry looks to innovate in the year ahead
Looking forward, several key trends are expected to shape the industry landscape. Digital transformation initiatives are likely to accelerate, with increased investment in automation, artificial intelligence and smart manufacturing technologies. The sector remains attentive to potential new governmental policies, particularly regarding tariffs, which could significantly impact both input costs and export opportunities.
As 2024 concludes, the manufacturing sector presents varying regional experiences against improving national indicators. While the national PMI shows signs of stabilization at 48.4, state-level data reveals deeper concerns, particularly in Minnesota. Despite these challenges, manufacturers are actively pursuing technological solutions and operational improvements, positioning themselves for potential opportunities in the coming year. It can be beneficial to work with a trusted financial partner when facing challenges and uncertainties in the future.