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The manufacturing sector is at a critical juncture as it navigates a landscape marked by volatility and uncertainty.

Wipfli’s Q1 2025 manufacturing pulse study sheds light on the current state of the industry, revealing key insights into the challenges and opportunities that lie ahead. As manufacturers grapple with various pressures — including tariffs, labor shortages and rising operational costs — understanding the sentiment within the industry is paramount for informed decision-making.

Overall, the industry has indicated a slight increase in optimism, with 55% of respondents forecasting higher profits in 2025 over last year, with an average expected revenue increase of 2.7%. Early positivity is typical for the industry, and we often see a drop-off in this sentiment as the year progresses, but it’s a promising sign that even with the increases we’ve seen in material and labor costs, firms are still expecting the best.

It’s important to note that this survey was conducted early in the quarter, before the Trump administration’s recently announced tariff plan had taken effect. While the data shows that tariffs were front of mind for manufacturers across sectors, their impact has yet to be fully felt, and it will be important to observe how this new policy affects results in Q2 and beyond.

Tariffs: The front-and-center concern

The introduction of tariffs has escalated to become the primary concern for manufacturers across diverse sectors. Not considered a top concern for manufacturers since 2018, tariffs have now emerged as a significant factor influencing business operations.

Broad-based concern across industries

Manufacturers in the automotive and aerospace industries, among others, have expressed heightened anxiety regarding the impact of tariffs on their operations. The sentiment surrounding tariffs is not confined to a single sector; instead, it resonates across the entire manufacturing landscape, including:

• Automotive industry: Manufacturers in this sector are particularly sensitive to tariff fluctuations, as they often rely on a complex web of international suppliers.
• Aerospace industry: Aerospace manufacturers face challenges in navigating tariffs that can affect their supply chains and cost structures.
• General manufacturing: Companies across various process types report tariff-related uncertainty as a top concern, citing unpredictability in sourcing costs and international trade policies as key business risks.

Anticipated increase in negative sentiment

As the year progresses, manufacturers anticipate an increase in negative sentiment related to tariffs. The uncertainty surrounding trade policies and their implications for pricing strategies and profitability will likely intensify, necessitating proactive measures from industry leaders.

The forecasting gap: Expectation vs. reality

One of the most pressing issues highlighted in the study is the forecasting gap, where manufacturers consistently fall short of their revenue and production forecasts.

Manufacturers have reported a recurring trend of three to five percentage points between expected and actual performance. This discrepancy underscores the need for more accurate forecasting methods that integrate both internal metrics and external data sources.

• Internal metrics: Companies must leverage their historical performance data to refine their forecasting models.
• External data: Incorporating insights from third-party market intelligence can enhance the accuracy of predictions and provide a more comprehensive view of market dynamics.
• Customer input limitations: Relying solely on customer forecasts can be misleading, as they may not account for broader market shifts or sudden changes in demand patterns.

In an era where data plays a pivotal role in decision-making, manufacturers must prioritize the development of robust forecasting frameworks. By embracing a data-driven approach, companies can better align their production capabilities with market demand, mitigating the risks associated with inaccurate forecasts.

Workforce woes: Access to labor and wage inflation

The manufacturing sector is also grappling with significant workforce challenges, particularly in accessing skilled labor and managing wage inflation.

Despite a growing demand for manufacturing services, companies are finding it increasingly difficult to secure skilled workers. The labor market remains tight, with unemployment rates at historically low levels, making it challenging for manufacturers to fill essential roles. Some issues facing employers include:

• Competitive hiring environment: Manufacturers are competing for a limited pool of talent, driving up wages and creating additional financial pressures.
• Retention challenges: Retaining skilled employees has become crucial, especially in a market where companies are struggling to attract new talent.
• Skills mismatch: Many available workers lack the specific technical skills required for roles such as CNC machining or precision tooling, leaving critical positions unfilled even amid broader labor availability.

The impact of wage inflation

As manufacturers strive to retain their workforce, wage inflation has emerged as a significant concern. Companies are compelled to offer competitive salaries and benefits to keep their employees engaged, which can strain profit margins.

Manufacturers must explore innovative retention strategies, such as enhanced training programs, career development opportunities and improved workplace culture, to maintain their workforce

The ripple effects of rising costs

Manufacturers are facing a perfect storm of rising costs, driven by inflation, increased material prices and higher interest rates. The cumulative effect of these rising costs is placing considerable pressure on manufacturers’ profitability. Many companies find it challenging to pass these costs onto customers, leading to squeezed margins.

Fluctuations in raw material prices are particularly impactful, affecting production costs and pricing strategies. The potential for increased interest rates further exacerbates the situation, as borrowing costs rise and impact capital investments.

As operational costs continue to climb, manufacturers must adopt strategies to safeguard their profitability. This may involve reevaluating pricing models, optimizing supply chain processes and exploring cost-saving initiatives.

Recommendations for resilience

Navigating these challenges is a difficult proposition. With tariffs, labor shortages and rising costs all posing problems, manufacturers must adopt a proactive approach to resilience. In these uncertain times, it’s essential to focus on the things you can control.

• Control internal variables: Optimizing internal processes is crucial for manufacturers seeking to improve efficiency and reduce waste. Streamlining production processes can improve output and reduce costs. Similarly, investing in automation technologies can enhance operational efficiency and mitigate the impact of labor shortages.

• Broaden data sources: Manufacturers should move beyond relying solely on customer forecasts. By incorporating a variety of data sources, including market intelligence and historical performance metrics, companies can make more informed decisions. Engaging with third-party data providers can offer valuable insights into industry trends and competitor performance.

• Know your numbers: Maintaining a clear understanding of costs is essential for effective decision-making. Manufacturers should implement consistent cost-tracking mechanisms to monitor expenses and adjust quoting strategies.

Being agile in quoting practices allows manufacturers to adapt to changing market conditions and maintain competitiveness.

Looking ahead to Q2

This survey, notably, was taken before the rollout of the Trump administration’s tariff policies. With the market confusion we’ve seen since then, it’s only logical that our next survey will likely yield some different results.

As we move into the second quarter of 2025, manufacturers can expect intensified concerns surrounding tariffs and profitability. The landscape is likely to remain challenging, with ongoing uncertainties related to trade policies and their implications for the manufacturing sector.

Companies may continue to face difficulties in achieving their profit forecasts, necessitating a focus on cost management and operational efficiency.

By adopting proactive strategies and leveraging data insights, companies can enhance their resilience and thrive in an uncertain market. The path forward requires a commitment to adaptability, collaboration, and continuous improvement, helping ensure that manufacturers are well-equipped to meet the demands of the future.

How Wipfli can help

Our Q1 manufacturing pulse study highlights the complexities and challenges facing the manufacturing sector. As tariffs emerge as a primary concern, manufacturers must navigate a landscape marked by workforce shortages, rising costs and the need for accurate forecasting.

If your manufacturing business is looking for help in uncertain times, Wipfli can provide the insight and strategic assistance you need to stay on solid ground. Our team of manufacturing industry professionals regularly takes the pulse of the industry and can advise you on planning and execution strategies that address current challenges — from navigating tariffs and trade issues to improving forecasting accuracy, optimizing operations and attracting skilled talent in a competitive labor market. Contact us today to get started.