Tariff Exposure, Manufacturing Growth, Healthcare Costs, and AI Adoption

Hey everybody, it's Gene Marks, and welcome to this week's edition of the Paychex THRIVE Week in Review podcast, where we look at some big headlines that are affecting small businesses like yours and mine and talk a little bit about them.

Before we get started, I want to tell you about a new webinar that is going on from Paychex. It all has to do with your I-9 audits. You the last thing your business needs is an unexpected roadblock to productivity, right? So, there's a new on-demand webinar from Paychex. It's called ICE Raids and I-9 Audits: How to protect your business from costly mistakes.

The webinar is featuring an attorney from Equifax Workforce Solutions and provides updates on immigration enforcement and compliance, best practices for conducting your I-9 audits, how to handle ICE and DHS interactions, and insights on examining employment verification documents.

So, you want to be proactive. You want to help avoid any costly fines or legal issues. This is a great webinar that will keep you up to date on all the things you need to know about preparing yourself for ICE and immigration and I-9 audits. The link to the webinar is in the show notes.

All right, so let's get to the news for this week. The first news comes from Yahoo Finance, and it is a new survey that was released by GoDaddy. Two-thirds of U.S. small businesses, according to the survey, report zero international exposure.

Here's the headline, global economic uncertainty fueled by trade negotiations, tariff escalations, and supply chain challenges continues to put pressure on many U.S. small businesses, particularly those with international exposure.

However, new findings from GoDaddy Small Business Research Lab reveals a different story among domestic focused microbusinesses. According to GoDaddy's July 2025 survey of around 1,400 U.S. small businesses, mostly with fewer than nine employees including many solo entrepreneurs, 69% reported no international supply chain exposure, with 45% sourcing more than half of their materials within their city or state.

In addition, 65% primarily serve local or state customers. These businesses may be less directly affected by global trade disruptions.

Also, on GoDaddy survey of 1,400 small businesses, optimism remained high; 72% of respondents expect their own revenues to increase or remain stable over the next six months and 45% believe the broader U.S. economy will hold steady or improve in that same period.

So, the GoDaddy survey of 1,400 small businesses reports many of them not being affected by tariffs and their optimism remains high for the remainder of 2025.

Here's another bit of news that impacts our business and it has to do with the Purchasing Managers Index or PMI. U.S. manufacturing is picking up. Obviously, so are consumer prices, but U.S. manufacturing expanded in August at the fastest pace since 2022. The S&P Global U.S. Manufacturing Purchasing Managing Index, an index based on questionnaires sent to purchasing managers at around 800 manufacturers, rose significantly in August. It was the largest monthly rise since May of 2022.

According to an economist at the S&P Global Market Intelligence, companies across both manufacturing and services are reporting stronger demand conditions. They have passed along tariff-related cost increases through to consumers in increasing numbers.

So, just note that manufacturing not only has remained strong, but is actually picking up in the month of August. That is also good news for small manufacturers.

All right, some not so good news. A report in Benefits Pro is saying that catastrophic claims are driving a projected 10% rise in employer health costs. Cost sharing and purchasing provider initiatives are the most impactful methods for managing these costs. This was a survey from the International Foundation of Employee Benefit Plans.

Their study found that U.S. employers are projecting a median health care cost increase, this in 2026, of 10%. A similar foundation survey conducted in 2024 projected a median cost increase of 8% for 2025. Employers have indicated, however, that cost sharing, plan design, and purchasing provider initiatives will be the most impactful techniques to manage costs.

So, if you're running a small business, it's bad news. Well, I've been seeing it already myself over the past couple of years. Healthcare costs have continued to rise about 8 to 9% per year, and even next year, the projection is a 10% increase in employer share of healthcare costs.

Yes, we can share more of these costs with our employees. My recommendation; Get health savings plans. Consider healthcare reimbursement arrangements. Look into self-funding with level-funded healthcare plans, as well. Those are some of the things that you can do to try and mitigate the costs of increasing healthcare, but they are going up about 10% in 2026.

Finally, we turn to technology. According to this new report that just came out, small business owners are adopting AI in droves: 68% of small business owners have adopted AI, and not only that, they are planning significant hirings, as well.

This was from Goldman Sachs' 10,000 Small Business Voices Survey. Again, 68% of small business owners say they're already using AI with another 9% planning to begin using it within the next year. That's a significant jump from 51% of small business owners who were using the technology to increase productivity and expand their capabilities two years ago.

Now, by the way, not to throw cold water on that, but I just want to be clear when we're talking about AI because I just wrote a piece about this in Forbes. AI adoption among all of my clients and my audience that I talk to – small business owners – primarily generative AI, like ChatGPT or Copilot or Gemini or Grok or Perplexity or Claude. Good stuff, good stuff.

A lot of business owners are starting to lean into these generative AI platforms to help them write emails, review contracts, create policies, and do a whole bunch of other things to help them run their business, which makes things way more productive than having humans do it for them. But those cost savings that they're realizing, those productivity gains, are only helping them and their employees do more during the day. No one is talking about laying off employees anytime soon.

And finally, even though the use of generative AI has expanded significantly among small businesses, the real AI – agentic AI – that is still a ways off. Agentic AI is where a lot of our applications from accounting to CRM to order management to HR will be doing things on their own, without human involvement or minimal human involvement. Well, that type of stuff is still being worked on. Nobody is relying on that type of AI for their core mission critical purposes. But it's good to see that a lot of business owners are leaning into some of the generative AI platforms to help them do things more efficiently and more productive.

Okay, so that is the news for this week on the Paychex Week in Review THRIVE podcast. If you need any advice or help to run your business, sign up for our Paychex THRIVE newsletter. Go to paychex.com/thrive.

And don't forget our on-demand webinar with Paychex on ICE Raids and I-9 Audits: How to protect your business from costly mistakes. There is a link to that webinar in the show notes.

Thanks so much for watching or listening. My name is Gene Marks. We'll be back to you in a week with more news that affected your business and a few takes on that news. We'll see you then. Take care.

Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit payx.me/thrivetopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR payroll benefits or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx. That's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive.

I'm your host, Gene Marks, and thanks for joining us.

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