The US economy’s contraction last quarter was something of a head fake, driven by a surge in imports as businesses tried to front-run tariffs. Consumption, though, has remained steady, begging the question of how soon tariffs will percolate through the economy and deliver the kind of negative shock to the hard data that household and business confidence surveys predict lies ahead.
The answer hinges to a large degree on when businesses that say they’re downbeat on the future put their money where their mouth is and slash spending, which would mean significant job losses followed by declines in consumer spending. And while that scenario may eventually play out, it’s likely to come closer to the end of the year given the uncertainty of this moment and the dynamics of corporate decision-making.
A stable labor market through April signals that consumers will keep spending over the next few months and companies that stockpiled imported goods in the first quarter will have no trouble meeting demand. Don’t take that to mean the economy is brushing off President Donald Trump’s import levies, just that big investment and labor decisions are being delayed until there’s greater policy clarity later in the year.
There has been evidence of this in the slate of first-quarter earnings updates this month. In the aggregate, S&P 500 Index companies haven’t cut spending plans with estimates for 2025 capital expenditure essentially unchanged since April 2, when Trump announced his “Liberation Day” tariffs. That’s driven in part by the big technology companies, which look unlikely to allow the recent uncertainty to derail their investments in artificial intelligence. Alphabet Inc. reiterated its full-year capex guidance for $75 billion last week, while Meta Platforms Inc. increased its projected spending this year to as much as $72 billion from $39.2 billion in 2024, signaling that the race for AI dominance continues.
Consumers, too, keep spending, executives tell us. Capital One Financial Corp. said that they saw a slight uptick in people’s credit card usage in April relative to this time last year, though they noted the timing of Easter may have helped, and that some softness in airfare spending has emerged. Visa Inc. said this week that they have seen no signs of overall weakness in consumer spending through April 21. Customer trends at regional casino operator Boyd Gaming Corp. in the first three weeks of April have remained consistent with March, the company said.
One reason for this is that jobs losses have stayed contained even as companies grow more cautious on new hiring. Weekly initial jobless claims through April 19 are consistent with the levels seen over the previous three months.
None of this means that the direct and indirect impact of tariffs won’t be a big negative for the US economy, only that companies may take even longer than consumers to translate diminishing confidence into action.
Federal Reserve Governor Christopher Waller said last week that he didn’t believe tariffs would have a significant impact on the economy before July. Freight activity and company inventory levels will decline well ahead of that, but at a macroeconomic level, there are buffers and product substitution options that will kick in before the top-shelf economic data starts to crack.
Companies must weigh the ramifications of tariffs remaining at their proposed levels along with the possibility that they’ll be dialed back substantially, as the White House sometimes signals and as financial markets seem to be anticipating. For now, that means contingency planning rather than substantial spending cuts.
July will mark the end of President Trump’s 90-day pause for tariffs on dozens of trading partners, delivering clarity for companies (unless another delay kicks in). But mid-year is a particularly difficult time for companies to cut spending, especially when they started 2025 optimistic about economic growth. We have some recent evidence of this from when corporate America had to adjust to the fast-moving conditions that emerged from the pandemic in 2022 and recession fears climbed.
Responding to analyst concerns about big capital expenditures in late April 2022, Amazon.com Inc. Chief Financial Officer Brian Olsavsky said that “many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust mid-year.” Similarly, Meta didn’t announce significant job cuts until November 2022 even though its revenues began declining in the second quarter. The company didn’t declare its “year of efficiency” until February of the following year.
There’s good and bad news in the slow-motion reality of how tariffs will flow into capex and headcount decisions. On the one hand, even if retailer shelves start to empty out later this quarter, we’re unlikely to get the kind of sudden stop in overall economic activity that we saw after the bankruptcy of Lehman Brothers Holdings Inc. in 2008 or when Covid had the world sheltering in place in March 2020.
At the same time, just because companies are more focused on contingency planning than laying off millions of workers now doesn’t mean a recession will be avoided. Companies came into “Liberation Day” betting on good times ahead and are trying to play that hand as best they can, hoping for a de-escalation in Trump’s trade war. But they will run out of patience if the economic outlook continues to darken when it comes time to make staffing and investment plans for 2026.
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