Business Forecast by Kiplinger: Decreased Uncertainty, Increased Costs Expected
In recent months, there has been a notable increase in bank lending for commercial and industrial purposes, marking a shift from two years of stagnation. However, this growth might be tempered by businesses' ongoing cautious approach to hiring and investment, as they navigate a landscape of increased costs and uncertainties.
One of the primary sources of these costs is the implementation of tariffs on various imports. According to recent reports, tariffs on most imports will add approximately 15% to their cost, on average. This increase is expected to have a ripple effect, with the cost of shipping by truck following seasonal patterns but not seeing significant increases until demand for manufactured goods and home construction improves.
The tariff-induced economic disruptions are not just limited to costs. They also cause a 0.4 percentage point increase in the unemployment rate and reduce payroll employment by approximately 594,000 jobs by the end of 2025. This elevated unemployment suggests higher labor market costs due to tariff-induced economic disruptions.
Businesses are grappling with these increased costs, and some are choosing to maintain customer relationships by accepting reduced profit margins. This strategy, however, may not be sustainable in the long run.
Trade deals are playing a role in making the future landscape more predictable, allowing businesses to project pricing decisions better. Recent trade agreements with Japan, the European Union, and the United Kingdom have reduced tariffs, offering some relief to businesses and consumers. For foreign automakers, these deals mean a reduction from the original tariff of 25% imposed on auto imports back in April.
However, special tariff rates of 50% or more could increase the cost of raw materials like steel, aluminum, copper, and graphite. This could further strain businesses, particularly those in the construction, agriculture, retail, leisure, and hospitality industries, which may be affected by possible labor shortages due to immigration reduction.
The current impact of tariffs in the US includes increased consumer prices, reduced business investment, higher labor costs, and disruptions in shipping dynamics affecting trade partners. Measures of business uncertainty have begun to ease recently, with these tariff deals being announced. When uncertainty declines, businesses tend to be more willing to invest and expand.
Recent executive orders continue to modify reciprocal tariffs to address persistent trade imbalances while considering national security and economic impacts, indicating ongoing policy adjustments that affect tariffs and their related costs on industries and labor.
In terms of wages, annual wage growth has dipped from 3.9% at the beginning of the year to 3.7%, with wage growth for production workers/blue collar workers expected to stay a bit higher, at 3.7%.
As the situation continues to evolve, businesses must decide whether to pass the increased costs onto end-users or accept reduced profit margins. This decision will have implications for both businesses and consumers, shaping the economic landscape in the coming months and years.
[1] Source: Council of Economic Advisers, 2019 [2] Source: National Federation of Independent Business (NFIB) [3] Source: International Monetary Fund, 2019 [4] Source: Congressional Budget Office, 2019
- As businesses struggle with the increased costs caused by tariffs, some are exploring alternative methods to maintain customer relationships, such as investing in digital asset platforms likedefi wallets, which may offer new financing options through Initial Coin Offerings (ICO) in the emerging financial sector.
- Amidst the economic uncertainties and increased costs, many businesses are also looking to improve their financial management and reduce costs by adopting more efficient business practices, such as optimizing their supply chains and hedging against potential fluctuations in raw material prices.
