Economic Crosswinds Intensify Amid July Tariff Turbulence

As we crossed into mid-July, the calm of the summer markets was disrupted by a new wave of tariff announcements, rekindling trade tensions and injecting fresh uncertainty into an already delicate economic landscape. While economic indicators remain mixed, warning signs are emerging across consumer spending, business investment, and housing activity.

🔁 Tariffs Return to the Spotlight

• President Trump reignited tariff threats with a proposed 35% duty on Canadian imports and potential blanket tariffs of 15%–20% on most trading partners.
• Over 20 countries received individualized tariff rate letters ahead of the anticipated August 1 implementation date.
• Although many carve-outs (product-specific exemptions) are expected, the scope and unpredictability of these measures are heightening economic policy uncertainty.

The rally in U.S. equity markets earlier this year aligned with a temporary tariff pause in April. With that pause now expired and uncertainty climbing, investor confidence is faltering.

🛒 Consumer Activity Slows

• Personal consumption growth decelerated sharply from 2.8% in 2024 to just 0.5% in Q1 2025.
• May saw a 0.3% decline in consumption and a significant cooling in consumer credit expansion.
• Retail sales fell 0.9% in May, driven largely by weak performance in autos and discretionary categories, though e-commerce remains a bright spot.

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💼 Business Sentiment Erodes

President Trump secured passage of a major fiscal bill and benefited from a “solid” jobs report, but both could carry significant long-term risks:

• The NFIB Small Business Index edged down to 98.6 in June, reflecting unease around trade and immigration policies.
• Capex plans weakened: firms reporting capital expenditures fell to the lowest level since mid-2020.
• While hiring plans have stabilized, difficulty in filling open roles continues, especially in healthcare, education, and public safety.

Businesses appear to be cautiously watching policy rather than investing for growth. The shift to defensive postures echoes trends last seen during early pandemic volatility.

📉 Labor Market: Resilient, Yet Sluggish

• Initial jobless claims dropped to 227,000 in early July, but continued claims rose to their highest level since late 2021.
• Long-term unemployment (27+ weeks) climbed to 23.3%, suggesting it’s taking longer for job seekers to find employment.
• The labor market remains functional, but momentum is clearly softening outside of a few resilient sectors.

Rather than large layoffs, employers are reducing hiring activity—freezing churn, which could delay recovery if the economy weakens further.

📊 Eyes on the Data: Inflation, Retail, Housing

• CPI (Tues): Core inflation remains modest, but higher gas prices may push June’s CPI up 0.25%, bringing the annual rate to 2.6%.
• Retail Sales (Thurs): A modest 0.2% gain is expected, but this won’t fully recover May’s decline.
• Housing Starts (Fri): Both single- and multi-family permits are down, with total starts likely falling to a 1.23 million unit rate.

🔍 Strategic Takeaways

• Volatility Ahead: Tariff escalation, particularly with broad threats to key partners, increases downside risk for Q3 and Q4.
• Consumer Retrenchment: Slowing consumption could pressure retail and service sectors, especially discretionary categories.
• Watch Capital Investment: Weakening capex may limit productivity and growth in the medium term.
• Labor Freeze: Job markets aren’t crashing—but they are stagnating, limiting upward mobility and wage growth.

📌 What to Watch: Inflation trends post-CPI release, tariff implementation on August 1, and consumer behavior in back-to-school and early holiday categories.