Washington — The U.S. economy continues to show surprising resilience, even as President Trump’s ongoing trade battles create uncertainty. Americans are still spending, businesses are finding ways to absorb rising costs, and unemployment remains low — at least for now.
Despite growing concerns around tariffs and the overall direction of trade policy, consumer spending hasn’t slowed. That’s largely because people still have jobs. With the unemployment rate sitting at just 4.2%, most Americans are able to keep money flowing into stores, restaurants, and online carts.
What’s especially interesting is how businesses have managed to keep things running. Instead of raising prices dramatically or cutting jobs, many companies have been quietly adjusting behind the scenes. Some have delayed placing large orders, staggered shipments to dodge tariff timing, or worked out cost-sharing deals with suppliers and customers. Others stocked up earlier in the year to get ahead of price hikes.
According to a recent report from the Richmond branch of the Federal Reserve, these behind-the-scenes moves have helped keep inflation relatively tame — even though the pressure is mounting.
But signs are starting to show that this delicate balancing act might not last. The prices businesses pay for supplies jumped 0.9% in July — a much bigger spike than expected — pushing the annual increase to 3.3%. That could mean consumers will start feeling the pinch soon.
“Tariffs haven’t hit consumer prices full-force yet, but that impact may only be delayed,” said analysts at the Richmond Fed.
Confidence Is Slipping, But Spending Holds Steady
While people are still shopping, they’re not exactly optimistic. Consumer sentiment dipped 5% this month, according to new numbers from the University of Michigan, landing at 58.6 — a sign that economic uncertainty is weighing on people’s minds.
But here’s the twist: lower confidence hasn’t stopped spending in the past, and it might not now either. In 2022, sentiment hit historic lows during peak inflation, yet shoppers didn’t slow down. And in 2023, despite political drama over the debt ceiling, consumer spending stayed solid.
Joanne Hsu, who oversees the Michigan survey, said people may no longer fear a worst-case scenario, but concerns about inflation and job losses haven’t gone away. In fact, expectations for inflation over the next year crept up to 4.9%, up from 4.5% in July.
Retail Sales Tell a Clearer Story
If you really want to know how people feel, don’t look at what they say — look at what they buy. In July, retail sales climbed 0.5%, in line with forecasts and showing consistent demand.
Car sales were strong, jumping 1.6%, and furniture stores weren’t far behind with a 1.4% boost. Online sales were also up, helped along by big events like Amazon’s Prime Day. Even gas stations and department stores saw modest increases.
On the flip side, home improvement and electronics stores saw slight dips. Dining out also declined — restaurant and bar sales dropped 0.4%, suggesting that rising costs may be forcing some people to cut back on non-essentials.
A key economic measure known as the “control group” — which strips out volatile spending areas — rose 0.5% in July. That’s a healthy number, and slightly better than what economists expected.
Even with inflation factored in (consumer prices rose just 0.2% in July), spending remained solid.
“At the end of the day, actions speak louder than surveys,” said Bill Adams, chief economist at Comerica Bank. “People may say they’re worried — but they’re still opening their wallets.”
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