Preliminary credit card transaction data indicates that consumer spending picked back up in July. This is a tremendous opportunity for small and medium-sized businesses that have faced a triple whammy of long-term headwinds. Industry leaders are still worried as companies are still realigning their supply chains to avoid the effects of tariffs. The increasing protectionism and unpredictability of trade policy has left many operators in a quandary. This has really put a damper on business confidence over the course of the first half of the year.
Despite some challenges, consumer activity in July looks to be stronger than expected. That’s a sign of a major turn in economic times. Analysts consider this increase to be a definitive sign. It’s a sign that consumers are starting to become less cautious with their spending and that should bode well across many industries. Given the long road ahead, though, this potential boost in consumer confidence is massively exciting. Now companies are experiencing new cascading challenges from tariffs.
Businesses are just beginning to adjust their supply chains to offset the impact of tariffs. These amendments can be rather intricate. Sometimes they actively impede operations and lead to inefficiencies, eroding businesses’ ability to find stability in a volatile marketplace. The process of adaptation is both expensive and time-consuming. Consequently, many recipients are overwhelmed and left without the necessary resources to adapt to an increasingly complex and likely regulatory landscape.
Sentiment as measured by operators’ outlook for their businesses has been severely impacted by these tariffs. During the first and second quarter earnings calls, a lot were pointing to a pessimistic outlook on growth potential. The never-ending carousel of newly-announced tariffs means a hazardous mood. Operators are discovering morale is crushed and disheartened. Many of these businesses are being squeezed on the outside. They are becoming more risk-averse about deploying new capital or hiring new employees.
Moreover, the effects of tariffs have been reflected in trends with hiring. The confusion and chaos over our trade policies has created a chill not just in the manufacturing sector, but across all industries, slowing the pace of hiring. In response, companies are being very conservative on adding back headcount. Retaliatory tariffs are now leading some of them to prioritize stability over expansion as they worry that unpredictable tariffs could further disrupt their business models.
With all that being said, these new consumer insights provide at least one glimmer of hope for retailers. Consumer spending is strengthening. That trend should provide the private sector all the momentum it needs to address the challenges tariffs are creating. As industry leaders make clear, any recovery is contingent on having stable and predictable trade policies. Under these conditions, companies would be able to make long-term investment decisions with greater certainty.