Trade War Uncertainty Ushers In Uneasy Summer for US Businesses

Will this be a long, hot summer for the U.S. economy?

As The Wall Street Journal (WSJ) reported Sunday (June 8), while job growth held steady last month and unemployment remains lower, there are still risks facing the American economy.

For one, the labor market has been in a place where businesses aren’t hiring, but are also hesitant to fire workers. 

But joblessness can surge if those companies determine demand is too soft to keep those employees, WSJ added, likening it to a beach ball racing upward after being held underwater.

“It starts with one large firm. Then competitors might say, ‘Well, listen, we have to do the same,’” Gregory Daco, chief economist at consulting firm EY, told WSJ.

In addition, American consumers could begin to chafe against rising costs, leading companies to cut back.

Delinquency rates on consumer debt have been climbing for a year, leading to fears that deteriorating finances for lower-income borrowers could bring about a more pronounced slowdown in consumer spending.

The latest consumer credit data from the Federal Reserve, released last week, showed that consumers in April turned to credit to pay for goods and services, a rush that suggests they sped up purchases as tariffs took hold.

The G19 report from the Fed found that the aggregate tally of consumer credit surged by $17.9 billion, which greatly outpaced consensus estimates of a $11.4 billion uptick.

Meanwhile, data from the Federal Reserve Beige Book released last week showed that while prices have climbed at a moderate rate, the full impact of tariffs have not yet been felt, amid comments from “contacts expecting costs and prices to rise at a faster rate going forward.”

Examining the labor landscape, the report said that “all Districts described lower labor demand, citing declining hours worked and overtime, hiring pauses, and staff reduction plans. Some Districts reported layoffs in certain sectors, but these layoffs were not pervasive.”

Research by PYMNTS Intelligence earlier this year showed that for consumers living paycheck to paycheck with challenges paying bills, credit was used for 41% of essential expenses and 43% of nonessential expenses. By comparison, consumers who don’t live paycheck to paycheck rely on credit for 56% of essential purchases and 63% of nonessentials.

“While credit demand remained elevated, concerns persisted around the affordability of loan terms,” PYMNTS wrote. “Additionally, some institutions began incorporating new risk factors, such as tariff exposure, into their credit approval processes, reflecting a cautious approach amid evolving economic conditions.”

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