US' economic contraction something of a head fake
Tired of too many ads?
Remove Ads
Tired of too many ads?
Remove Ads
Tired of too many ads?
Remove Ads
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
an hour ago
- Time of India
American Eagle traffic plunges after Sweeney ad backlash
Foot traffic at American Eagle stores fell 9 per cent year over year in the week starting August 3, according to Pass_by data shared exclusively with Retail Brew. This drop marked the second week in a row of declining store visits since the brand launched its ' Sydney Sweeney Has Great Jeans' campaign on July 23. As per the report by Retail Brew, in the first full week after the campaign began — the week starting July 27 — store visits were already down 3.9 per cent YoY, Pass_by reported. Before the campaign, American Eagle was seeing positive traffic growth. The week starting July 6 had visits up 5.9 per cent YoY, and the week starting July 13 saw a 4.9 per cent YoY increase, according to the same data. Competitors also see smaller drops in store visits In the August 3–9 period, other youth-focused clothing retailers also saw lower traffic but not as steep as American Eagle's fall. Abercrombie & Fitch was down 3.3%, H&M down 4.9%, Gap down 2.8%, and Urban Outfitters down 2.7 per cent, as per Pass_by data, reported by Retail Brew. ALSO READ: Grow a Garden Cooking Update: Full list of food pets and how to get Gourmet Eggs Debate grows over Sydney Sweeney ad backlash Pass_by report stressed that correlation is not causation, so there's no proof the Sydney Sweeney ad is directly responsible for the traffic drop. Retail Brew asked American Eagle whether their own data showed store visits or sales changing since the campaign launch. The company did not respond. The ad has drawn criticism from some for alleged eugenic undertones and being oversexualised. Supporters such as The New York Post — have pushed back at critics, calling them a 'crazed woke mob.' High-profile political figures backing the campaign include President Donald Trump, Vice President JD Vance, and Senator Ted Cruz , according to the report by Retail Brew. ALSO READ: What is Sepsis — the heart of the problem behind America's hand soap recall, and how dangerous is it? FAQs Q1. Why did American Eagle's store visits drop recently? American Eagle's store visits fell after launching the controversial Sydney Sweeney ad campaign in late July. Q2. What is the controversy around the Sydney Sweeney American Eagle ad? Some people criticise the ad for being oversexualised and having eugenic undertones, while others defend it.
Time of India
an hour ago
- Time of India
Tariff tangle: Cast shrimp nets right, and India could come up trumps!
Factors Details Shrimp export share to US ~92% of India's seafood exports ~$2.5 billion New US tariff ~50-59 % (up from 6-8%) Impact on margins Narrow profit margins (4-5%) are likely to be wiped out Potential market response Order cancellations, discounting, renegotiations Financial fallout Rs 600 crore burden on in-transit shipments Diversification efforts Pivoting to the EU, China and Gulf countries Support strategies Branding, RPA talks, support tied to export employment Live Events India produces approximately 900,000 to 930,000 tonnes of shrimp annually, with production volumes fluctuating due to factors such as disease outbreaks, unseasonal rains, and feed costs. In FY 2023-24, India's annual shrimp exports were substantial, totalling around $4.88 billion. Frozen shrimp accounted for the largest share of the country's total marine product exports, which stood at $7.38 August 6, 2025, US President Donald Trump announced an additional 25% tariff on goods imported from India. This move was a penalty tied to India's continued purchases of Russian energy and military equipment and set to take effect on August 27, 2025. Earlier on August 1, 2025, Trump had imposed a 25% reciprocal tariff. With the total tariff now at 50%, it is expected to severely impact key export sectors, such as shrimp, making Indian goods less competitive compared to rivals like Ecuador, which enjoys a much lower tariff of 10% on seafood exports to the US. Trade experts and government officials have stated that this steep tariff makes Indian exports to the US unviable and has prompted the Indian government to explore alternative markets and fast-track domestic reforms to support affected constitutes about 92% of India's seafood exports to the US, with a value of around $2.5 billion in FY 2023-24. Export margins in shrimp are typically narrow, ranging from approximately 4% to 5%. An increase in tariffs to over 50% from the previously existing 6-8% significantly squeezes profitability and makes Indian shrimp uncompetitive against rivals like Ecuador. The Seafood Exporters Association of India has issued a warning that 2,000 containers currently in transit may face additional duties, resulting in an estimated burden of Rs 600 crore to be borne by exporters. Major shrimp-exporter states such as Andhra Pradesh, which saw its marine exports to the US in 2024-25 valued at $170 million—nearly all frozen Vannamei shrimp—are especially susceptible to order cancellations, renegotiations, and financial distress across the supply chain. Share prices of listed companies like Avanti Feeds and Waterbase dropped up to 7% following the tariff announcement, reflecting investor concern over lost US market access and a potential collapse in are exploring new export destinations such as China, the European Union (EU), Japan, and West Asia. However, analysts caution that these transitions will take time to compensate for losses in the US market. The Indian government is encouraging exporters to build indigenous branding and consider support schemes tied to employment in marine exports to maintain competitiveness. Plans are underway for a US-India Regional Partnership Agreement (RPA) aimed at aligning trade and sanitary protocols, which could lead to a reduction in rejections and a more streamlined compliance process similar to the existing arrangements with Ecuador. Rather than subsidies, the government is exploring 'innovative' support strategies that align with the World Trade Organisation (WTO) compliance, moving away from subsidies. These strategies may include marketing campaigns, brand-building efforts, and potentially employment-based export support tariffs imposed by Trump, which have risen to about 50-59%, put a severe strain on the Indian shrimp industry, threatening to erode profit margins and competitiveness in its largest overseas market. While short-term shocks appear unavoidable, mitigation through new trade agreements, branding, compliance upgrades, and market diversification may help avert long-term the challenges in the export market, India's domestic shrimp market presents a significant opportunity for growth. Several factors and initiatives are driving this expansion. India's domestic shrimp market is already a major segment, with forecasts indicating it will reach $22.7 billion by 2033 (GII Research, IMARC Group, Research and Markets). This growth is driven by rising incomes and urbanisation. A growing middle class, equipped with greater disposable incomes, is increasingly adding seafood, such as shrimp, to their diets. There is a growing consumer awareness of the nutritional benefits of shrimp, particularly regarding its high protein content. Shrimp is a widely used ingredient in various Indian cuisines, contributing further to its increased government agencies and private players are actively working to promote domestic consumption. State governments are launching rebranding campaigns to increase awareness and consumption of locally produced shrimp. These campaigns are inspired by successful models of institutes like the National Egg Coordination Committee, which made eggs a household staple. The government is providing financial assistance for shrimp farming, processing, and marketing, including concessional finance for entrepreneurs and investors to set up aquaculture facilities and value-added product processing plants. There is a focus on building better cold storage and distribution networks to ensure the availability of fresh shrimp across the country, including in non-coastal areas. The rise of organised retail and e-commerce platforms is facilitating the sale of value-added shrimp products, like frozen, ready-to-eat, and marinated shrimp. This caters to the demand from urban consumers with busy can indeed turn this crisis around and come up trumps if we cast our nets right!!The writers M. Krishnan is former Principal Scientist & Head, ICAR - Central Institute of Fisheries Education, Mumbai; Badri Narayanan Gopalakrishnan is a visiting Senior Fellow, CSEP, New Delhi.
Time of India
2 hours ago
- Time of India
US tariffs not to hit India's growth: S&P
US tariffs not to hit India's growth: S&P NEW DELHI: Trump tariffs will not have any impact on India's growth, as it is not a trade-oriented economy, and its sovereign ratings outlook will continue to remain positive, S&P Global Ratings director YeeFarn Phua said. In May last year, S&P had upgraded the outlook on India's sovereign rating of 'BBB-' to positive, citing robust economic growth. On Aug 6, US President Donald Trump announced an additional 25% tariff on all Indian imports, on top of an existing 25% duty, taking the total to 50% from Aug 27. YeeFarn said, "I don't think the tariffs imposed on India will have an impact in terms of economic growth, largely because India is not a very trade-oriented economy. And if you look at India's exposure to the US in terms of exports to GDP, it is just about 2%." Stay informed with the latest business news, updates on bank holidays , public holidays , current gold rate and silver price .
