Consumers aren’t at the forefront of tariffs – and that’s a positive sign: Part II
Yesterday’s Breitbart Business Digest reported that businesses, not consumers, are feeling the impact of tariffs. Today, we delve deeper into this evidence and discuss why this is a good omen for the economy.
When tariffs were looming, if consumers were rushing to buy goods, we’d likely see that reflected in retail data. But we don’t. Retail sales increased by 1.4%. While March numbers seem solid, we aren’t seeing signs of panic buying. Categories for durable goods held steady or even dipped, with electronics and appliances barely moving. Sales of furniture took a hit, and online retailers only showed slight growth. The surge in car sales likely stemmed from 0% financing offers rather than a frantic response to 10% tariffs.
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Bank of America’s late April data on credit and debit card usage will shed more light on this situation. Credit card spending dropped by 3.3% year-over-year, and debit card spending also fell. Key discretionary areas, like furniture and department stores, saw significant declines. If consumers were rushed to buy ahead of the tariffs, we’d expect to see a surge in card balances and spending. Instead, the opposite is evident.
There’s a structural reason for this. Many households lack financial flexibility in anticipation of price raises. A recent Federal Reserve study revealed that only 54% of adults feel their savings could cover three months’ expenses, while 63% can manage a $400 emergency. These aren’t households clearing out Walmart in reaction to macroeconomic changes. Most families adhere to monthly budgets and manage emergency funds as part of their retirement planning. They’re not depleting their savings or accumulating debt to counter a hypothetical increase in prices due to tariffs.
The March Personal Income and Expense Report highlights consumer indifference. Disposable personal income climbed by 0.5% for the month. Actual consumer spending rose by 0.7%, yet the increase was mostly in services, not goods. Expenditures on non-durable products actually went down. Spending on durable goods increased, but this seems more like a recovery from a significant drop in February, rather than a preemptive buy. Prices for durable goods remained flat to low, showing that households weren’t frontloading purchases. They simply continued their usual spending habits steadily and modestly.
Business foresight is a positive signal for the economy
The narrative flips here. The business sector that might have lifted GDP is actually a bullish indicator. If there were concerns about dwindling demand, businesses wouldn’t place large orders or stock up. Instead, steady sales prompt such actions, as companies try to secure supplies before potential price hikes. The rise in port activity in March wasn’t a panic move but rather a proactive measure. Businesses will build inventory if they believe sales will remain strong.
It’s even more encouraging that consumers didn’t rush into spending. If households were hastily spending to avoid tariffs, we’d likely face a consumption hangover later this year. But demand hasn’t surged; spending patterns have remained stable. The real threat to the economy isn’t that consumers overspent in the first quarter. Everyone is really concerned about a retreat.
Final sales to private domestic buyers—a clearer measure of demand, excluding inventory changes, trade, and government—actually rose by 3.0% in the first quarter. This marks an acceleration since the fourth quarter and constitutes one of the strongest components in the GDP report overall. Beneath the surface of negative headlines lies a resilient economy with stable consumer behavior and forward-thinking businesses.
There’s no indication that consumers are at the forefront of tariffs. This isn’t a sign of weakness; it’s a sign of strength. Demand isn’t being drawn forward from the future. It remains intact. Meanwhile, businesses are gearing up their inventories, anticipating continued sales. This scenario might actually reveal that a negative GDP headline is a bullish signal in disguise.
