At the start of the year, industrial clients were already familiar with a longstanding litany of pre-existing challenges, including elevated labor costs, high interest rates, and difficulty attracting and retaining qualified talent. A sudden, and erratic, changing tariff regime not only added economic turbulence but squeezed industrial profit margins—forcing manufacturers to be cautious about headcount during what otherwise would have been a time to ramp up production. These challenges, old and new, have led to a multiyear period of dwindling employment levels in what is the staffing industry’s largest vertical: industrials.
While this period has, in many ways, been marked by hurdles and headwinds for the industry, staffing firms can adapt to uncover new opportunities. As employers prioritize lean operations, staffing companies need to avoid becoming blocked out of sight by clients’ productivity-centered tunnel vision. As cautious as employers are due to macroeconomic trends, staffing firms can persuade potential clients that utilizing staffing services is the safe bet during these times by showing them how their firm can provide the increasingly scarce talent that employers want with the flexibility they need to navigate economic turbulence.
COST PRESSURES RESTRAIN GROWTH
Industrials is an economic sector that is highly sensitive to labor costs and interest rates, and both have been elevated for several years now. While interest rates are descending to alleviate the weakening labor market, it is likely wage inflation will remain a persistent force as rising prices demand higher wages to keep pace—known as the wage-price spiral.
According to the U.S. Bureau of Labor Statistics, inflation-adjusted monthly wage growth for production and nonsupervisory employees (roughly 80% of the total workforce) is struggling to stay above zero, growing 0% in August, while employment costs for employers continue to rise—especially within the industrials sector.
In terms of total compensation (wages plus benefits) per hour per employee within production, transportation, and material moving occupations, it took 12 years for total costs to rise $5—from $25 per hour per worker in 2009 to $30 in 2021. More recently, it took just three years for costs to rise another $5, from 2021 to 2024. The pace at which costs increase for industrial clients to employ workers has accelerated, discouraging hiring and compressing margins.
TRADE TURBULENCE INTENSIFIES THE SQUEEZE
In addition, tariffs have squeezed clients’ profit margins by increasing the price of inputs, which producers use extensively via exposure to interconnected supply chains. The manufacturing sector consumes 83.7% of all U.S. imports, making it by far the most exposed economic sector to tariffs, according to data from the U.S. Census Bureau.
The inflationary impact from tariffs is now starting to show in the data, as core personal consumption expenditures (PCE) rose from 2.8% in May to 3.1% in August. As a percent of total contribution to core inflation, supply-driven inflation is becoming more prominent month-to-month relative to demand-driven or ambiguous inflation, according to the San Francisco Federal Reserve. While intended to bolster the industrial sector, tariffs have amplified margin compression and triggered mild stagflation as inflation and employment trends diverge.
While the existing effects of the tariff regime have been largely counterintuitive considering this (only 5% of companies reported tariffs having a positive impact on their business, according to the Q2 2025 Vistage CEO Confidence Index), of all applicable companies who responded to that survey over half (54%) said their organization was at least considering reshoring or expanding production in the U.S. (while the remainder are not considering it at all).
UNCERTAINTY CLOUDS RESHORING DECISIONS
Though reshoring should be a headwind for industrial staffing, a confounding tailwind is the unpredictability of tariff rates. Stability in trade policy is a prerequisite for bringing production back home, or else businesses won’t be able to pin down their logistics and have the confidence to take on more workers.
While tariffs so far have failed to increase industrial employment, they have arguably triggered an increase in production. In response to anticipated tariffs, businesses rushed to stockpile their private inventories—leading to a slight decline (-0.6%) in gross domestic product (GDP) during the first quarter from soaring imports and a large increase (3.8%) in GDP in the second quarter from crashing imports as tariffs took hold. Imports are, on paper, a drag on GDP growth but are crucial for the interconnected supply chains that industrial firms utilize.
While imports were the main way businesses stocked their inventories, domestic manufacturing added a notable 1.1% to GDP growth in the second quarter of 2025—while in the previous two quarters manufacturing had been a drag on growth. Although GDP growth should indicate an upward trend for employment, temporary production occupations have shed around 44,000 jobs this year, according to ASA estimates. The increase in real GDP from manufacturing is due to increased productivity, with economic turbulence and the above factors depressing employment.
DEMOGRAPHIC TRENDS TIGHTEN THE LABOR POOL
Even as industrial clients are cautious to take on headcount, they face a shortage of qualified talent that will get worse in the long run. Modern manufacturing increasingly relies on workers with specialized skills to be competitive. A gradually aging workforce has been slowly draining organizations of technical and institutional knowledge, and these individuals are not being replaced by younger workers at sufficient rates, according to the MEP National Network Advancing U.S. Manufacturing report.
U.S. Bureau of Labor Statistics data supports this claim, as while the entire workforce is aging, as of 2024 the median age for workers in the manufacturing industry is 44.3, compared to 42.3 for all workers. In addition, the foreign-born labor force—many of whom work in the light industrial space (in 2023, 21.8% of workers in nondurable manufacturing and 18.5% in durable, according to analysis of Current Population Survey data within “The Role of Foreign-Born People in the U.S. Labor Force” report by the Society for Human resource Management)—is now contracting, down 2.5% year-to-year as of August 2025, according to BLS. In total, the foreign-born population level has decreased by nearly two million since reaching a peak in March 2025.
Labor shortages from lower immigration and the aging population will mean workers with the necessary skills for a modern manufacturing sector will be scarce, keeping labor costs high. But this could also draw industrial clients toward staffing to meet their labor needs.
LEVERAGING SPECIALIZED TALENT TO STAND OUT
In today’s low-churn job market with limited opportunities, finding niches could be a sink-or-swim moment for staffing companies—especially those serving industrial clients. Staffing firms should look toward placing specialized, highly skilled labor that is only going to become scarcer as long-term demographic trends and immigration policy exacerbate the skills gap and labor availability. The good news is that, compared to the general workforce, the staffing industry already has a surplus of skills related to the industrial space. According to ASA estimates, temporary workers have greater proficiency in complex industrial skills such as operation and control (47.2% versus 20.5%) and operations monitoring (47.7% versus 21.1%) than regular nonfarm employees.
According to Staffing Industry Analysts, since the pandemic larger industrial staffing firms have been seizing up market share—with the top 15 industrial staffing firms accounting for 49% of the total market in 2024, compared to an average of 41% prepandemic. Smaller industrial staffing firms should look to specialize for this reason, as well.
MEETING INDUSTRIAL NEEDS WITH PRECISION AND FLEXIBILITY
The importance of skills and innovation to modern manufacturing is growing, but the labor pool for industrial employers is contracting. Staffing companies can be the critical source of labor these companies need—especially for smaller clients that lack the resources to source themselves. According to BLS, most manufacturers in the U.S. (74%) are small businesses with fewer than 20 employees—prime potential clients that would appreciate the partnership with a staffing firm to place workers.
While industrial clients are seeking to do more with less headcount via cross-training, automation, and performance incentives, staffing firms can take a page out of their clients’ playbooks and do the same—emphasizing that they can provide the talent employers need with the dexterity they want to navigate economic uncertainty. While economic turbulence has depressed investment and consumption, with slower economic growth the most likely outcome, staffing companies should make the case that utilizing temporary workers is the cautious choice within a turbulent economy and economic sector where precision and quality are key.
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