AI is fueling a U.S. manufacturing renaissance

Treasury Secretary Scott Bessent spent much of last year predicting that the Trump administration’s policies would set off a boom in capital spending. The boom would begin with artificial intelligence and a handful of enormous factory projects, spread across the industrial economy, and eventually produce jobs. The latest manufacturing data look remarkably like the economy Bessent described. Production of business equipment rose 0.8 percent in July and 6.6 percent from a year earlier. It grew at a 12.7 percent annual rate in the second quarter, accelerating from 7.6 percent in the first.

Bessent first forecast the boom at the Milken Institute conference in May 2025. “The primary components of the Trump economic agenda—trade, tax cuts, and deregulation—are interlocking parts of an engine designed to drive long-term investment in the American economy,” he said. The One Big Beautiful Bill restored 100 percent expensing for machinery and equipment, immediate expensing for domestic research and development, and temporary full expensing for qualifying factory structures. And, importantly, it made this permanent. Instead of deducting the cost of a machine over many years, a business can take the deduction immediately. This lowers the after-tax cost of investment and rewards companies for acting now. Tariffs raise the return on producing in the United States and eliminate the threat of predatory dumping from abroad, while deregulation and faster permitting make it easier to get factories built.

Information-processing equipment rose 1.5 percent in July and 8.9 percent from a year ago. Computer and electronic-product manufacturing climbed 1.9 percent during the month and 9.9 percent over the year. But the boom isn’t limited to AI and data centers. In the business equipment category “industrial and other equipment”, output jumped 1.4 percent in July. Machinery rose 0.8 percent. Electrical equipment increased 1.3 percent. Fabricated metals climbed 1.2 percent, and aerospace advanced 1.4 percent. Production of equipment parts rose 1.3 percent and is up 6.1 percent over the past year. Business equipment excluding motor vehicles jumped 1.5 percent in July, an especially impressive performance because auto production fell 2.1 percent. Factories are also running harder. Machinery producers operated at 82.9 percent of capacity in July, well above their long-run average of 78.2 percent. Electrical equipment utilization reached 86.8 percent, compared with a historical average of 81.7 percent.

The jobs appear to be arriving. Durable-goods manufacturers added 18,000 workers in July and 44,000 over the past three months. The July gains included 7,900 jobs in motor vehicles, 2,900 in computers and electronics, 2,600 in machinery, and 2,500 in fabricated metals. This is all the more remarkable because the overall labor force is barely growing. The average workweek in durable manufacturing has risen to 42.3 hours from 41.3 hours a year ago. Overtime has climbed to 4.1 hours from 3.7 hours. This is what an industrial revival looks like. Factories use existing workers and equipment more intensively. As demand persists, businesses add machinery, expand capacity, and hire new workers to operate the new equipment.