Tariffs Raises Thanksgiving Costs?

Key Concepts

• Tariffs: Taxes imposed on imported goods.
• Supply Chain Pressures: Disruptions or difficulties in the flow of goods and services from production to consumption.
• Inflation: A general increase in prices and decrease in the purchasing value of money.
• Shrinkflation: Reducing the size or quantity of a product while keeping the price the same.
• Trade Deficit: The difference between a country's imports and exports, where imports exceed exports.
• Consumer Sentiment: The general attitude of consumers towards the economy and their personal financial situation.
• Discretionary Spending: Spending on non-essential goods and services.

Impact of Tariffs on Thanksgiving Groceries and Black Friday Shopping

Anna Swanson, a trade and international economics reporter for The New York Times, discusses the impact of tariffs and broader pricing pressures on holiday shopping. While the administration has introduced some tariff exemptions, Swanson believes tariffs have contributed to food price increases this year, though they are not the sole or overwhelming factor.

Thanksgiving Dinner Pricing:

• The White House claimed a Thanksgiving dinner was 3% cheaper than last year.
• This claim was found to be misleading because it referred to a specific, smaller basket of goods assembled by Walmart, containing six fewer items than the previous year.
• In contrast, the overall cost of food at home, as reported in inflation data, is up 2.7% year-over-year. This increase is felt by consumers, especially given higher base prices and existing affordability concerns from the previous year.

Specific Product Price Increases:

• Price increases have been uneven across different food products.
• Beef and coffee have seen substantial price hikes.
• The price of coffee has risen nearly 19% this year, potentially due to a 50% tariff on products from Brazil and 20% tariffs on those from Vietnam, major coffee sources.
• The recently announced tariff exemptions are seen as potentially helpful for specific categories like coffee but are unlikely to significantly impact overall grocery prices.

Challenges in Economic Data and Analysis

The disruption caused by the government shutdown has made it more difficult to accurately assess the economic landscape, particularly for the holiday season.

• Delayed Data Releases: Important economic data, such as the September jobs report, has been delayed. October and November data will be blended, affecting the portrait of wages. CPI (Consumer Price Index) and PPI (Producer Price Index) inflation prints have also been impacted.
• Impaired Economic Vision: The lack of regular, timely data creates confusion and an "impaired vision of the economy" at a critical time for consumers and the Federal Reserve's interest rate decisions.
• Unemployment Data: The September jobs data showed unemployment ticking up to 4.4%, which may be the only print available for a significant period.
• Household Surveys: The absence of an unemployment rate in the October data is due to the inability to conduct household surveys after the fact.

Future Expectations for Tariff-Related Pricing Pressures

Swanson anticipates that companies will become increasingly willing to pass on the costs of tariffs to consumers over time.

• Reasons for Slow Impact:
  • Stockpiling: Companies initially held off on price increases by working through stockpiled inventory acquired before tariffs took effect.
  • Supply Chain Lags: The time it takes for goods to move from factories to warehouses and stores means the full impact of tariffs is not immediate.
  • Economic Caution: Companies have been hesitant to raise prices due to concerns about consumer spending and observing competitors' actions.
• Company Responses to Tariffs:
  • Shrinkflation: Reducing product quantity within packaging instead of raising prices.
  • Quality Reductions: Decreasing the quality of products.
  • Product Line Concentration: Cutting back on less profitable or optional product lines to focus on core segments. An example given is a company selling artificial Christmas trees and decorations that is not selling snow globes this year to concentrate on core tree types.
• Overall Consumer Experience: These responses generally lead to a less optimal experience for American consumers, whether through higher prices, reduced quality, or fewer product options.

Impact on Big-Ticket Items and Holiday Shopping

The holiday shopping season, particularly Black Friday, is expected to see potential price increases and pressures on big-ticket items like electronics and toys, which heavily rely on foreign components.

• Dependence on Foreign Sources: Many large items are sourced from China and other countries in Southeast Asia and Mexico.
• Reduced Tariffs, Still High: While the U.S. has a deal with China that reduced some tariffs, they remain substantial.
• Translating to Costs: These tariffs are translating into higher costs and potentially less product availability for consumers.
• Reluctance for Reshoring: Despite the goal of encouraging domestic manufacturing, companies in sectors like toys and apparel show reluctance to bring production back to the U.S. due to significantly lower overseas production costs.

Consumer Behavior and Holiday Sales Forecasts

While forecasts suggest continued growth in holiday sales, there are indications of increased consumer caution.

• Holiday Sales Projections:
  • Black Friday sales are expected to be up 7-9% year-over-year.
  • Overall holiday sales are projected to increase by about 4% by the National Retail Federation.
• Consumer Caution: Despite expected growth, there is a sense of increased caution among American buyers, which could lead to fewer purchases, especially of discretionary and high-cost items.
• Uncertainty for Businesses: Company owners face uncertainty regarding the strength of Black Friday sales, potential shortages, and product availability.
• Soft vs. Hard Data: The narrative of differing "soft data" (consumer sentiment) and "hard data" (actual spending) is relevant, with sentiment suggesting more caution than actual spending patterns might initially indicate.

General State of U.S. Trade

The year has been characterized by significant volatility in trade policy, with tariffs being announced, delayed, and reintroduced.

• Volatility for Companies: This fluctuating tariff landscape has created volatility for businesses, leading them to try and "game the system" by importing products ahead of tariff implementation and pausing purchases when tariffs are active.
• Trade Deficit: The U.S. trade deficit through August is up 25% from the previous year. This is partly attributed to companies front-loading purchases to get ahead of tariff changes.
• Impact of Tariffs: The implementation of tariffs weighs on trade and the ability of companies to import goods.
• Harm to Partner Economies: Countries like Canada and Japan are experiencing negative impacts from this trade slowdown with the U.S.
• Watching for Policy Shifts: A key area of observation is whether the administration will move away from its tariff-heavy posture, with potential for more exemptions or a resurgence of tariffs.
• Trade Policy Announcement Method: Trade policy is often announced through presidential tweets and social media posts.