MHI Solutions Improving Supply Chain Performance
Some of the biggest risks to the 2025 economic and material handling outlooks evaporated in late 2024 with a swift and decisive outcome of the U.S. presidential election that removed the most significant risks to uncertainty and potential economic and societal disruption. With the recent end of the first quarter of 2025 under a new presidential administration, the economic picture is unfolding largely as anticipated, though not without surprises.
The expectations previously shared are still part of our base case scenario for moderate growth, including easing inflation, slowing job gains and ongoing geopolitical risks. While some of these areas have offered promising developments, challenges remain significant—and geopolitical surprises and kinetic conflict risks could upend an otherwise positive outlook.
U.S. Economic Growth Outlook
The U.S. economy has been growing, although we still expect GDP growth for 2025 is likely to be at a slower pace than in 2024. This moderation reflects the lagged impact of high interest rates in previous years and dampened capital investment that is typical in a high‑rate environment. The consumer is likely to support GDP growth and e‑commerce, while lower interest rates are likely to support material handling and supply chains in the months ahead.
For growth, consumer confidence remains the most critical variable because consumer spending accounted for around 69% of GDP growth in Q3 2024. On the upside for consumption and growth, there are many reasons to be optimistic, including high total non‑farm payrolls, relatively high total job openings, low consumer debt delinquencies, high home prices and high wages.
U.S. Job Gains
The U.S. labor market continues to post modest gains in employment, though at a slower pace compared to the robust recovery years following the pandemic. This deceleration is one we anticipated—and have been forecasting—as the economy transitioned from a period of rapid post‑pandemic expansion to a more modest growth trajectory against a backdrop of relatively high interest rates. Overall, hiring is significantly easier than it was back in late 2023 or early 2024. This bodes well for material handling, supply chain, logistics and transportation businesses that struggled to get the people they needed in the immediate wake of COVID‑19.
Knowledge work job gains slowed significantly with the rise in interest rates and the peak period of open jobs back in March 2022, when there were almost 12.2 million open jobs in the United States. While the number of open jobs has fallen by millions, it is still a competitive labor market—especially when trying to fill physically demanding in-person jobs.
Inflation in Gradual Decline
Year‑on‑year rates have fallen over the past two years, reflecting both a normalization of supply chains and the effects of high interest rates. However, core inflation has remained sticky in some areas. Wage pressures in certain sectors, coupled with geopolitical risks, pose upside risks to inflation expectations. Central banks are navigating this environment with caution.
As interest rates fall further, the potential for the labor market to become more competitive is likely to increase. This is going to be part of a tricky balance that the U.S. Federal Reserve will need to navigate because wages, home prices and service costs could rise if the Fed cuts interest rates too quickly.
Interest Rates Easing Yet Elevated
Interest rates have begun to trend downward, reflecting the shift in monetary policy as inflationary pressures return to levels more consistent with the Fed’s 2% target. Despite the on-trend progress on year‑on‑year inflation and recent rate cuts, interest rates remain relatively high compared to prepandemic levels. A continued easing of interest rates would be conducive to growth and supportive of the labor market. We expect more rate cuts ahead. For many industries, those cuts cannot come fast enough. Looking ahead to the end of 2025 and 2026, we expect interest rates to be lower, which is likely to support hiring, economic growth, manufacturing and material handling activity later this year and next year.