Harv's Corner 04/07/2025

Harv's Corner

Tariffs are generally considered detrimental to an economy because they act as taxes on imported goods, raising prices for consumers and businesses. This reduces purchasing power and can increase production costs for domestic industries reliant on imports. Furthermore, tariffs often invite retaliatory tariffs from other nations, harming export industries and potentially leading to trade disputes, ultimately reducing competition and overall economic efficiency.
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​Anxious consumers brace for tariffs
Worried about inflation, Americans are reluctant to spend on nonessential items.
By ABHA BHATTARAI The Washington Post
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Americans are tapping the brakes on spending — pulling back on dining out, hotel stays and other expenses, as they boost their savings ahead of new tariffs and continued economic uncertainty.

Consumers are increasingly anxious about the economy, and they're curbing spending habits accordingly, data released Friday shows.

Consumer spending inched up by 0.1% in February, after adjusting for inflation, following a 0.6% drop the month before, according to government figures. Meanwhile, the personal savings rate — or how much of their incomes people set aside — rose to 4.6%.

A separate survey released by the University of Michigan, meanwhile, showed that Americans' views on the economy fell for a third straight month, to the lowest level since 2022, as households and businesses prepare for a wave of higher prices once new tariffs go into effect this week.

"Consumers are increasingly apprehensive about spending," said Lydia Boussour, a senior economist at EY-Parthenon. "We are seeing clear signs that people are being more careful — they're reluctant to spend on nonessential expenses. They're worried about inflation and have preemptive anxiety around tariffs."

Strikingly, economists say Americans of all income levels, including the wealthiest, are rethinking their spending — in what could be a pivotal warning. The drop-off in consumer spending is expected to drag down economic growth in the first three months of the year, with many economists now forecasting a contraction after years of consistent growth.

The highest-earning 10% of Americans, with annual household incomes of $250,000 or more, have been driving much of the economy's postpandemic boom, accounting for 49.7% of all U.S. spending, according to calculations by Moody's Analytics for the Wall Street Journal.

But a recent slide in stock prices, combined with a burgeoning trade war, is causing even those well-heeled shoppers to think twice before booking vacations and snapping up designer watches. The forces driving Americans' recent wealth gains "are under considerable risk of slowing or reversing," Mark Zandi, chief economist at Moody's Analytics, wrote in a February report.

Johnny Franco, a plastic surgeon in Austin, said clients are increasingly opting for simpler procedures and local anesthesia, which can be thousands of dollars cheaper than going under during surgery.

"There's only so much money to go around for our patients," he said.

It's important to note, economists say, that consumers haven't stopped spending altogether. Americans who want jobs largely have them, and they're getting wage increases. But years of inflation, combined with a slowing labor market and new tariffs, have many anxious about what's ahead. Two-thirds of consumers now expect the unemployment rate — currently 4.1 percent — to rise in the coming year, the highest reading since 2009, according to the Michigan survey.
Federal job cuts

At Well-Paid Maids, a cleaning company with branches in Washington, D.C., New York and Chicago, sales have slowed considerably this year. The drop has been most pronounced in the Washington area, where federal job cuts and funding freezes have left many government workers or contractors, and those around them, concerned about their finances.

More than 10 percent of recurring customers in the D.C. area have canceled altogether in the past two months, they've lost their jobs or are worried they soon might.

'We only buy things on sale'
"The real challenge is the vibes," founder Aaron Seyedian said. "People really do buy and spend based on economic vibe, and right now, there's just an amalgam of red arrows trending downward in peoples' minds. And that really don't make them want to reach for their wallets."

Americans spent less on a range of items in February compared with January, including cars, electronics, sporting goods and dining out, census data shows. Many of those items could soon become even more expensive, as the Trump administration places sweeping tariffs on vehicles and other imported goods.

In Indianapolis, Erika Ocampo and her partner have shelved plans to buy a second car. With higher grocery and housing costs, their budget is already stretched thin. Since January, they've spent $6,000 on vet bills for a dog with cancer and several hundred more on diapers, clothing and food for their 2-year-old daughter.

"Things used to be so cheap here in Indianapolis," said Ocampo, 32, a technical recruiter. "But now we're thinking hard about every cost. We only buy things on sale and it's like, 'Do we really need Amazon Prime? What else can we cancel?'" (Amazon founder Jeff Bezos owns the Washington Post.)

Major retailers, including Target, Foot Locker and Macy's, have all recently noted signs of shopper hesitation. And U.S. airlines this month warned that demand is slowing, with Delta Air Lines, Southwest Airlines and American Airlines all revising down their forecasts for the first three months of the year.

'Waiting to see'
"People are cautious, and they're pulling back a little bit on travel," Delta CEO Edward Herman Bastian said in a presentation. Travelers, he said, are "kind of waiting to see what's going to transpire, whether it's trade and tariff challenges or macroeconomic policy changes."
Adinah Greene, who lives in Sonoma County, California, lost her job working on employee benefits at the end of January. Since then, she's sent out hundreds of applications and secured a few interviews, but says she's still being prudent about spending. Big-ticket purchases are on hold, and she is limiting takeout to one $30 order a week.
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Early in the pandemic, Greene had bought a series of vacation packages, prepaying for accommodations in destinations like Puerto Rico and the Dominican Republic. But even the thought of scheduling one of those trips now — and paying for airfare — feels ludicrous.
"I keep getting calls about my next booking and it's just, like, 'Dude, I can't go on a vacation anytime soon,'" said Greene, who's 45. "I haven't dialed back my spending completely, but I'm definitely being more careful."