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U.S. Manufacturing Struggles Amid Tariffs, But AI Investment Offers Hope

Manufacturing and Engineering

Business Honor - U.S. Manufacturing, AI Sparks Hope

Business Honor
12 September, 2025

AI-driven investments provide relief to U.S. manufacturers facing prolonged downturn and tariff pressures.

U.S. production has suffered another month of decline, its sixth consecutive decline in August. The Manufacturing Purchasing Managers' Index (PMI) from the Institute for Supply Management rose marginally to 48.7 in August from July's 48.0, yet below the critical 50-mark indicating continuing weakness in the industry. Manufacturing contributes around 10% to the U.S. economy and has been grappling with the long-term effects of import tariffs, which have increased the cost of raw materials.

While there has been continued contraction in manufacturing, there is a silver lining in the form of artificial intelligence (AI). Several companies have increased expenditure on AI-based products, which has come as a welcome relief for struggling manufacturers. Investment in intellectual property goods hit its four-year high rate of growth in the second quarter, which served to mitigate some of the adverse effects from tariffs. Analysts expect the AI splurge to continue and even provide additional support for the manufacturing industry in the next few months.

The ISM survey also showed some positive signs. The new orders sub-index for expectations in the future was up to 51.4, indicating possible future expansion after six months of contraction. Production, though, declined to 47.8, which indicates the continued difficulties encountered by manufacturers. Factory employment is still weak, with firms cutting headcounts as they are uncertain of demand in the short term.

At the same time, lead times for materials have lengthened, with the supplier deliveries index increasing to 51.3. This lag is supporting higher factory input prices, and economists are forecasting that goods prices will increase in the latter half of 2025 as a result of continuing tariff pressures. As tariffs continue to affect the cost of manufacturing, companies might eventually transfer these increased costs to their customers and, in turn, further disrupt the economy. Still, the AI investment boom presents a potential solution for U.S. manufacturers to grow and survive in a new environment.