As we move through the second half of 2025, middle market companies across North America – in U.S., Canada, and Mexico - are demonstrating remarkable resilience in the face of mounting economic and geopolitical pressures. Our latest NCMM Middle Market Indicator reveals a complex landscape shaped by recession concerns, post-pandemic recalibration, and intensifying tariff and trade dynamics. These forces are reshaping strategic priorities and operational realities for firms in North America.

The broader national context in the U.S. shows similar concerns.  Citing a weak job market, last week the Fed in the U.S. lowered interest rates by 25 basis points, despite recent unmet inflation targets and projections of more inflation fueled by tariffs.

The Recession Cloud: Middle Market Confidence Wanes, Growth Slows

Economic uncertainty remains a dominant theme. In the U.S., Middle Market’s confidence in the national economy has dropped 11 percentage points since December 2024, with global and local sentiment also trending downward. Revenue growth, while still strong, has declined to its lowest level since the pandemic, averaging just 10.7% across the middle market. Employment growth has similarly softened to 7.4% from 10.3% in 2024Q2, with fewer firms hiring and more opting to hold steady.

Canadian firms echo this caution. Their projected revenue growth has dipped to 8.3%, down from 10.2% a year ago, and projected employment growth has slowed from 9.4% to 8.8%. Mexican firms, by contrast, continue to outperform, with projected revenue growth at 12% and employment growth at 11.2%, driven by a subset of high-growth companies.

Altogether, the growth rates for revenue and employment, whether just experienced or projected, remain impressive across the Middle Market in North America, weakening confidence notwithstanding.

Post-Pandemic Rebound: A Mixed Recovery

The post-pandemic recovery has entered a new phase. The initial surge in hiring and investment has given way to more cautious expansion. U.S. firms report reduced hiring needs, and fewer are planning strategic expansions such as entering new markets or launching new products. In Canada and Mexico, optimism persists but is tempered by inflation, labor shortages, and geopolitical instability.

Notably, Mexican firms are leaning into digital transformation and innovation, with strong investment in AI, automation, and workforce training. Canadian firms, meanwhile, are prioritizing profitability and margin improvement, reflecting a more conservative posture in response to economic volatility. 

So, middle market firms in North America are sustaining revenue and employment growth through new means.

Tariffs and Trade: A Growing Threat to Middle Market Stability

Tariff and trade policy changes are emerging as critical disruptors. In Canada, escalating tensions with the U.S.—including increased tariffs on steel and aluminum and retaliatory measures—have created uncertainty and raised costs. In Mexico, the expiration of tariff pauses and threats of secondary tariffs have heightened concerns among business leaders.

The impact is tangible. Firms across North America report increased input costs, reduced profit margins, and supply chain disruptions directly linked to tariff changes. Notably, nearly 58% of Canadian and 54% of Mexican firms express high concern about future trade policy shifts, compared to 44% in the U.S. This differential is understandable.  Canadian and Mexican firms have experienced more pressures from policy shifts regarding tariffs. These pressures are affecting demand, pricing strategies, and long-term planning. For example, 35% of Canadian and Mexican firms report increased customer prices due to tariffs, while 34% and 32%, respectively, cite reduced profitability. US firms have not been spared entirely from similar impacts in some ways, with a comparable 38% of US firms increasing customer prices while 32% indicate reduced profitability.  The need to find alternative suppliers and navigate complex customs processes is adding to the administrative burden on Middle Market firms.
 

North American Trade Dynamics: A Regional Snapshot

The June 2025 data paints a vivid picture of how trade tensions are playing out across the continent:

  • Canada: Facing steep U.S. tariffs and stalled negotiations, Canadian firms have grappled with retaliatory measures and the threat of further escalation. The digital services tax dispute and fentanyl-related trade rhetoric have further strained relations. As of now, the U.S. has imposed tariffs ranging from 10% to 50% depending on the Canadian goods and whether they are USMCA (formerly NAFTA) -complaint. Canada has imposed counter tariffs of 25% on many U.S. goods, though counter tariffs on some U.S. goods have been removed and other dropped for being USMCA-complaint. The situation remains fluid and thus uncertain.
  • Mexico: Regulatory shifts, labor rights disputes, and tariff threats have created uncertainty. The U.S. has signaled potential secondary tariffs, and Mexican firms are responding with strategic adjustments, including export notifications and supply chain diversification. For goods not USMCA-complaint, the U.S. imposed a 25% tariffs rate on Mexican goods. But, on steel, aluminum, and copper the rate is 50%.  There have been active negotiations, including a 90-day suspension to delay implementation. Altogether, the situation is uncertain.
  • United States: While less directly impacted by foreign tariffs compared to their Canadian and Mexican counterparts, U.S. firms are feeling the ripple effects through supply chain instability and rising costs. The broader economic slowdown is compounding these challenges.
 

Looking Ahead: Strategic Imperatives for Middle Market Leaders

In this environment, middle market leaders must balance caution with agility. The data suggests several imperatives:

  1. Diversify Supply Chains: With trade tensions rising, firms should explore alternative sourcing strategies to mitigate risk.
  2. Invest in Technology: Digitization and AI adoption are proving essential for operational efficiency and resilience.
  3. Monitor Policy Developments: Staying informed on tariff and trade policy changes is critical for strategic planning.

As we continue to track these trends, the NCMM remains committed to providing actionable insights that empower middle market firms to navigate uncertainty and seize opportunity.




Anil Makhija
SVP, Resilience Services Practice Leader

 

 

 

About the Author

 Anil K. Makhija serves as a professor of finance while holding the Dean’s Distinguished Professorship at the Max M. Fisher College of Business. Prior to his current role, Makhija served as the college's dean and held the John W. Berry, Sr. Chair in Business from 2014-2024. He also served as the founding Academic Director of the National Center for the Middle Market. A recognized expert in corporate finance and organizational strategy, Anil Makhija has led groundbreaking research on the middle market and regularly advises business leaders and policymakers.

 

References
[1] June 2025 NCMM Barometer Report_7_15_25 F
[2] June 2025 NCMM Barometer Report CA MX