James' World 2

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Measures of business uncertainty have begun to ease recently, with tariff deals being announced with Japan and the European Union. The National Federation of Independent Business (NFIB) Uncertainty Index declined in June and will likely come down further in July. When uncertainty declines, businesses tend to be more willing to invest and expand. Perhaps related to the decline in uncertainty is that bank lending for commercial and industrial purposes has bumped up in June and July after staying flat for two years. However, businesses are still showing their caution by limiting their hiring plans.

Labor costs continue to ease slowly at the mid-year mark. Annual wage growth has dipped from 3.9% at the beginning of the year to 3.7% now, and should hit 3.5% by the end of 2025. However, production worker/blue collar wage growth should stay a bit higher, at 3.7%, as slowing immigration reduces labor supply for these jobs. Of course, the construction, agriculture, retail, leisure, and hospitality industries will be most affected by possible labor shortages because of their reliance on immigrants.

Tariffs will add about 15% to the cost of most imports, on average. Businesses will face the decision of whether to pass that cost along to end-users or customers. Some will accept reduced profit margins in order to maintain current customer relationships. As more trade deals are made and the future landscape turns more predictable, businesses can project pricing decisions better. But the prices of raw materials like steel, aluminum, copper, and graphite could jump, given special tariff rates of 50% or more. Commerce Department investigations are continuing for semiconductors, pharmaceuticals, and lumber. A lumber import tariff of 35% is expected when that investigation concludes in the next month or two.

Other tariffs that have been implemented include an additional 20% on imports from China, bringing the rate to 30%; 25% on imported motor vehicles; 25% on imports from Canada and Mexico that were not covered under the previous USMCA agreement (which is up for renegotiation in July 2026); and 10% on energy imports from Canada. Recent trade agreements include 15% tariffs on Japan and the European Union, and 10% on the United Kingdom. Important for foreign automakers is that these trade deals mean a reduction from the original tariff of 25% imposed on auto imports back in April.

The cost of shipping by truck will follow the seasonal pattern of the past two years. Rates have fluctuated in a narrow band for a while, and won’t pick up appreciably until demand for manufactured goods and home construction improves. However, UPS and FedEx rates have spiked this year as earlier surcharges appear to be permanent. As a result, shippers are looking to slower, cheaper services like FedEx Ground Economy, UPS Ground Saver, and, of course, the U.S. Postal Service.

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Kiplinger video

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Click the link below for the complete article (video -sound on):

https://www.kiplinger.com/economic-forecasts/business-spending

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