As we move into the second half of 2025, small and mid-sized manufacturing bus- inesses across the western United States, including pallet recyclers and producers, are navigating a landscape shaped by evolving fiscal policy, labor constraints, and the uncertain global trade environment.
Three major firms, Deloitte, McKinsey & Company, and EY, have each issued mid-year economic reports outlining how shifting macroeconomic factors are likely to shape business performance in the coming months. While the tone varies, a few themes emerge consistently: resilience in consumer spending, persistent labor challenges, and divergent outcomes tied to fiscal and monetary policy decisions.
Trade, Tariffs, and Uncertainty
Deloitte’s mid-year report underscores the unpredictable nature of trade policy and how it’s complicating economic forecasting. “Tariff policy has been particularly difficult to nail down,” the report notes, with court rulings and ongoing negotiations leading to a fluid policy environment. Deloitte’s base- line scenario assumes that tariffs will remain modestly higher than at the start of the year—with rates holding at about 15% on average.
While manufacturers are adapting, the increased cost of inputs and delays in sourcing components from global partners continue to pressure margins. For bus- inesses relying on steel, nails, or equipment sourced from abroad, staying abreast of trade developments remains essential.
Hiring Headaches Continue
Labor remains one of the most pressing issues facing manufacturers. EY’s recent economic insights caution that “tight labor markets are still the biggest challenge for many mid-market firms.” The report points to ongoing demographic shifts and slowed immigration as key contributors. Sectors like manufacturing, logistics, and construction continue to feel the strain— particularly in rural regions or areas with aging workforces.
McKinsey & Company likewise notes that “talent gaps are not temporary.” While automation may provide relief over the long term, the short-term pain continues, especially for operations that require on-site, skilled labor such as forklift drivers, repair technicians, and saw operators.
With fewer applicants and rising wage expectations, small and mid-sized employers are finding that the traditional strategies, like job board postings and modest wage increases, are no longer sufficient. McKinsey suggests firms “take a
more holistic approach to workforce planning,” including offering training opportunities and tapping into underserved talent pools.
Capital Spending and Investment Outlook
On the investment side, conditions are mixed. EY’s outlook points to a rise in strategic capital expenditures by larger firms, especially in energy transition, digital infrastructure, and supply chain automation. However, for smaller operators, the cost of capital remains a limiting factor.
While interest rates may have peaked, Deloitte notes that long-term rates remain elevated. “Although the overall [federal budget] bill is expansionary... it offers only limited upside next year relative to the government’s tax and fiscal stance this year,” the firm writes. For manufacturers contemplating equipment purchases or facility upgrades, this means being selective and cost-conscious in their planning.
At the same time, McKinsey points out that many small and mid-sized businesses have stronger balance sheets than expected, in part due to conservative fiscal management and pandemic-era savings. For those in a position to invest, areas such as preventive maintenance, digital order management, and worker retention tools may offer the best return.
A Volatile but Manageable Path Forward
Each of the three reports emphasizes that uncertainty remains a core theme in 2H 2025, whether driven by U.S. elections, global conflicts, or shifting regulatory priorities. Still, none forecast a sharp economic downturn. Deloitte's baseline scenario anticipates steady, if modest, growth—supported by consumer resilience and ongoing, albeit fragile, global supply chain recovery.
McKinsey, in particular, cautions against overreacting to short-term volatility. “Companies that thrive tend to be those that can pivot quickly, build flexible supply chains, and communicate transparently with employees and partners,” the firm advises.
In a similar vein, EY emphasizes that many companies are doubling down on resilience strategies. These include securing local suppliers, building stronger HR policies, and investing in technology to monitor and improve operations. These are pragmatic steps that small and mid-sized manufacturers—such as those in the pallet sector—can take without overextending resources.
Above all, the second half of 2025 looks to be a time for disciplined execution rather than big gambles. As McKinsey puts it, “It’s not about predicting the future perfectly—it’s about being ready for a range of futures.”
Economic Outlook Mid-Year 2025: Cautious Optimism Meets Ongoing Headwinds
July 2025