National Association of Manufacturers Q2 2025 Survey: Manufacturing Confidence Falls to Lowest in Five Years

The National Association of Manufacturers (NAM) Q2 2025 Outlook Survey signals a notable shift in manufacturing sentiment and emerging risks. Optimism has dropped to 55.4%, the lowest since Q2 2020. Forecasts for sales, hiring, investment and exports are all softening, while tariff-related cost pressures are mounting across the board.

For audit committees, chief audit executives and risk conscious finance leaders, this isn’t just a sign of economic unease. It’s an indication to review whether governance, forecasting and controls are aligned to where real risk is moving.

With these shifts in mind, it’s important to examine the specific areas where risk is increasing and where governance and audit leaders may need to refocus their attention.

Tariffs Are Reshaping Cost Structures and Exposing Risks

About 89% of manufacturers surveyed reported increases in tariff-related costs, averaging 7.7%. These rising costs have noticeable effects, with nearly 80% citing direct operational and financial impacts such as delayed investments, hiring freezes and canceled customer orders.

Key question: How is the organization adjusting forecasts, pricing and controls to reflect higher input costs?

Why it matters: If forecasts or margins still reflect old cost structures, financial risk increases — especially in pricing, contracts and inventory valuation. Risk leaders and finance teams should reassess whether controls over cost pass-throughs, supply chain resourcing and margin protection are keeping up with these cost pressures.

Investment Slowdowns May Drive Long-Term Strategic Risk

The survey shows that capital investment is nearly flat at +0.3%, down from 1.2% last quarter. A third of manufacturers plan to reduce or delay investments, and export projections are negative for the first time since 2020.

Key question: Which initiatives — especially innovation, automation or market expansion — are being paused, and why?

Why it matters: Strategic drifts can creep in during downcycles. If the company is pulling back on projects that were critical to long-term value, governance leaders need to understand the implications. Risk and internal audit teams should also reassess whether liquidity and growth forecasts reflect current, not historical, assumptions.

Digital Transformation Is Accelerating Without Uniform Oversight

Digital transformation remains a top priority as 85% of manufacturers say they will emphasize it in the coming year, with more than 20% placing significant emphasis. However, the pace of change is happening faster than it’s being governed.

Key question: What guardrails are in place to manage risk across fast-moving digital projects and new technology rollouts?

Why it matters: As companies rush to digitize, many do so without adapting their IT governance. Controls over system access, data quality, change management and cybersecurity may not scale with transformation. Audit committees and risk teams alike should advocate for clear ownership, risk visibility and post implementation reviews.

Flat Hiring May Strain Labor-Dependent Controls

Manufacturers expect employment to grow just 0.6%, a slowdown from Q1’s 1.1%. Large manufacturers project a net decline of 0.5%, and nearly 40% of respondents expect no hiring changes.

Key question: Are critical controls, especially manual or review-based ones, being executed by stretched or reduced teams?

Why it matters: If key control owners are overextended or no longer in place, risk increases for fraud, error and oversight lapses. Risk leaders should revisit staffing assumptions within the control environment and explore automation or additional monitoring to maintain reliability.

Tax Policy Ambiguity Is Creating Modeling Risk

Over 85% of manufacturers say it’s urgent for Congress to act on tax policy, but nearly all oppose proposed rate hikes or deduction limits. Yet no clarity has emerged.

Key question: How are tax assumptions being modeled into forecasts, and are there scenarios in place for various legislative outcomes?

Why it matters: Forecasts based on current tax rules may not hold. Deferred tax accounting, pass-through assumptions and capital planning all carry modeling risk. Finance and audit leaders should prepare for multiple scenarios and confirm that models don’t overly rely on status quo projections.

Final Word: Why This Is a Risk Management Moment

This quarter’s NAM report isn’t just a cyclical dip. It reflects cross-cutting risks that span operations, strategy, finance and governance. Tariff fallout, cautious investment and digital urgency point to a shared theme: risk exposure is shifting, and governance needs to keep up.

Whether you serve on the audit committee, lead internal audit or oversee finance and operations, now is the time to ask challenging questions and ensure the answers realign risk assessments, control testing and strategic audit planning for the year ahead. As the landscape shifts, Weaver can help you stay aligned and prepared. Contact us to explore next steps.

Authored by David Lange and Michael Rusk

©2025

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