Editor’s Note

Now That 2025 Is Behind Us — What Comes Next?

The U.S. manufacturing sector closed 2025 in a paradox: a national economy posting solid GDP growth while the factory floor remained in persistent contraction. For Florida manufacturers — many of whom supply both domestic and export markets — this divergence created a uniquely challenging operating environment where financial discipline, tax strategy, and cost structure became decisive competitive advantages.

At Kal Onomato CPA, our Florida-based advisory team works directly with manufacturing businesses to translate macroeconomic insight into actionable financial and tax strategy. This edition of Economic Insights for Manufacturers covers the three dominant themes of 2025, their projected carry-over effects into 2026, and the specific steps Florida manufacturers should be taking right now to protect margins, reduce tax liability, and build resilience in an uncertain environment.

Theme One

The Shifting Trade Landscape — What Florida Manufacturers Must Understand

Global trade rules underwent significant stress-testing in 2025. Tariff actions targeting Chinese goods expanded in scope, enforcement of Section 301 duties intensified, and bipartisan support in Washington for a more protectionist trade posture showed no signs of receding. For Florida manufacturers — many of whom source components from Asia or compete directly against imported finished goods — these developments created both cost pressure and competitive opportunity depending on supply chain positioning.

Tariff Exposure and Input Cost Inflation

Manufacturers relying on imported raw materials, components, or intermediate goods faced meaningful input cost inflation in 2025 as expanded tariff coverage increased landed costs. Steel, aluminum, electronics, and precision-machined components were among the most affected categories. Florida manufacturers in aerospace, marine equipment, and industrial equipment sectors reported the most pronounced impact on bill-of-materials costs.

Reshoring and Nearshoring: Florida’s Strategic Advantage

The countervailing force in the trade story is the accelerating reshoring and nearshoring trend that continued to benefit Florida in 2025. Florida’s geographic position, port infrastructure, workforce depth in precision manufacturing, and zero state income tax environment make it one of the most attractive destinations for manufacturers relocating production from Asia or consolidating supply chains from Latin America and the Caribbean.

For 2026, the trade environment remains fluid. Ongoing negotiations around bilateral trade agreements, continued Section 301 tariff reviews, and potential new tariff actions on European goods create an environment where supply chain flexibility and domestic input sourcing are strategic assets — not optional upgrades. Florida manufacturers who have not yet conducted a comprehensive supply chain risk and cost analysis should prioritize that work in Q1 2026.

Theme Two

Sector Contraction in a Growing Economy — The Divergence That Defined 2025

One of the defining characteristics of 2025 was the persistent divergence between a broadly healthy U.S. economy — which posted GDP growth of approximately 3.1% for the year — and a manufacturing sector that spent the majority of the year in contractionary territory as measured by the Institute for Supply Management’s Purchasing Managers’ Index (PMI). A PMI reading below 50 indicates contraction; the manufacturing PMI remained below 50 for 11 of 12 months in 2025, ending the year at 47.8 in December.

What Drove Contraction Despite Economic Strength?

The manufacturing contraction was driven by a combination of factors that operated independently of broader consumer spending strength. First, elevated interest rates — even after the Fed’s three 2025 cuts — continued to suppress capital goods orders as buyers deferred large equipment purchases in anticipation of further rate relief. Second, inventory correction cycles that began in 2023 extended through 2025 in several categories, suppressing new production orders even as end-user demand remained adequate. Third, the services sector’s disproportionate share of U.S. consumer spending growth in 2025 channeled economic activity away from goods-producing industries.

Strategic Implications for Florida Manufacturers in 2026

The persistent contraction also created specific financial planning challenges that Florida manufacturers need to address entering 2026. Working capital management became critical as receivables extended and inventory turnover slowed. Fixed cost leverage declined as production volumes fell below optimal thresholds. And for businesses planning capital investments, the cost-benefit calculation on timing — borrow now at still-elevated rates, or wait for further Fed cuts — became a genuine strategic decision rather than a routine budgeting question.

Theme Three

The Fed’s Rate Cuts — Relief Delivered, More Expected

The Federal Reserve cut its benchmark federal funds rate three times in 2025, reducing it by a cumulative 75 basis points from the peak reached in 2023–2024. While the direction of monetary policy shifted clearly in favor of manufacturers, the pace and ultimate magnitude of the cuts fell short of what many in the sector had anticipated entering the year — partly due to inflation remaining modestly above the Fed’s 2% target and partly due to the continued strength of the broader economy, which reduced urgency for aggressive easing.

What Rate Cuts Mean for Florida Manufacturers

Lower rates reduce borrowing costs for working capital lines of credit, equipment financing, and real estate used in manufacturing operations. For Florida manufacturers carrying variable-rate debt — including revolving credit facilities and floating-rate term loans — each 25 basis point cut by the Fed translates directly into reduced interest expense. A manufacturer with $10 million in variable-rate borrowings sees approximately $75,000 in annual interest savings from a cumulative 75 basis point reduction.

2026 Rate Outlook and Capital Planning Implications

Market expectations entering 2026 point to two additional Fed rate cuts during the year, contingent on continued progress toward the 2% inflation target and no material re-acceleration in economic activity or energy prices. For Florida manufacturers planning capital investments — equipment upgrades, facility expansion, automation initiatives — this creates a decision framework where the case for waiting is weaker than it was 18 months ago, but the case for acting before the anticipated 2026 cuts fully materialize is also credible.

The optimal capital investment timing decision depends on the specific project’s return on investment, available tax incentives (including Section 179 immediate expensing, bonus depreciation, and potentially R&D credits for qualifying process innovation), and the manufacturer’s current balance sheet position. Our advisory team models this decision for every Florida manufacturing client on an individualized basis, incorporating both the financing cost trajectory and the available tax benefits that can meaningfully reduce the after-tax cost of capital investment.

2026 Outlook

Sector Outlook by Vertical — Q1 2026 Assessment

The following table summarizes our advisory team’s assessment of key manufacturing verticals active in Florida for Q1 2026, incorporating trade dynamics, demand signals, and rate environment factors.

Your Q1 Action Plan

What Florida Manufacturers Should Do Right Now

The economic themes of 2025 carry clear action implications for 2026. The following checklist represents the highest-priority financial, tax, and operational steps our advisory team recommends for every Florida manufacturing client entering Q1 2026.

• Conduct a working capital stress test. Model your receivables, inventory turnover, and payables cycles under three scenarios: flat demand, a 10% revenue decline, and a 15% revenue increase. Identify your liquidity floor and credit facility headroom before a stress event — not during one.
• Review your R&D tax credit eligibility. Florida manufacturers who have invested in process improvement, new material testing, prototype development, or production line automation in 2025 may qualify for the federal R&D tax credit under IRC §41 — a dollar-for-dollar reduction in tax liability. Combined with restored §174 immediate expensing, the combined tax benefit can be substantial.
• Analyze your variable-rate debt portfolio. With additional Fed cuts expected in 2026, evaluate whether refinancing any fixed-rate obligations or converting variable-rate exposure to fixed makes sense given your growth and cash flow projections. Our CFO advisory team models the optimal debt structure for each client individually.
• Assess your tariff exposure and supply chain alternatives. If your business sources from tariff-affected countries, model the cost of transitioning to domestic, nearshore, or lower-tariff-exposure suppliers. Florida’s geographic position makes it uniquely well-suited for Latin American nearshoring supply chains in many categories.
• Model capital investment timing with tax incentives included. Before deferring or accelerating any planned equipment investment, obtain a full model of available Section 179 expensing, bonus depreciation, and qualifying R&D credits. The after-tax cost of investment is often materially lower than the pre-tax sticker price suggests.
• Review key management retention structures. In a constrained skilled labor market, losing a key plant manager, operations director, or sales leader to a competitor can cost more than an entire year’s retention program. Structured Long-Term Incentive Plans (LTIPs) and Non-Qualified Deferred Compensation (NQDC) plans are among the most cost-effective retention tools available to Florida manufacturers.
• Update your financial projections for 2026–2028. Lenders, equipment lessors, and potential M&A partners all expect manufacturers to present credible, data-supported financial projections. Three-year forecasts built on documented assumptions — incorporating the macro trends covered in this report — signal organizational maturity and strengthen every stakeholder conversation.

Related Solutions

How Our Team Supports Florida Manufacturers

Our Florida-based advisory team has spent 15+ years helping manufacturers navigate exactly these kinds of macro environments — turning economic complexity into concrete financial and tax advantages. The following services are most directly applicable to the themes covered in this edition.