3 days ago
PPI Jumps in July, Underscoring Growing Costs for US Manufacturers—And Likely Future Price Hikes for Consumers
Trickle-down economics may indeed be in effect—just not in the way Ronald Reagan envisioned.
The Bureau of Labor Statistics (BLS) released its Producer Price Index (PPI) on Thursday, revealing an unexpected 0.9 percent surge in July compared to the previous month. It was the biggest monthly increase since 2022, and well above the projected growth of 0.3 percent.
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July's increase pushed annual index growth to 3.3 percent, the most significant 12-month bump since the 3.4 percent announced in February.
What does it all mean? Well, compared to Consumer Price Index (CPI) data released Wednesday, the price index for the American manufacturing sector is up—way up. CPI data showed that inflation accelerated for shoppers from June to July at a rate of 0.2 percent, and an annualized rate of 2.7 percent. While consumers have indeed clocked higher prices at retail, inflation was cooler than analysts and economists expected.
The divergence between the CPI and the PPI suggests that until very recently, companies were largely eating the cost of President Donald Trump's tariffs rather than passing them along to their clients. That may not be true for much longer.
'Tariff-exposed goods are rising at a rapid clip, indicating that the willingness and ability of businesses to absorb tariff costs may be waning,' Oxford Economics analysts wrote in a research note on Thursday, referencing the PPI. 'We anticipate broader signs of tariff-driven inflation in the data over time as inventories roll over and firms adjust pricing under margin pressure.'
With the president's 'reciprocal' tariffs kicking in last week and producers feeling squeezed by higher import costs, American consumers may be in for much steeper prices in the months to come.
'As of now, we have absorbed the costs of the increased tariffs. We know this is not sustainable. We will be having a price increase soon to offset increase costs for trimmings, cloth, tariffs and labor,' Alexa Roberti, director of sales for Rochester, N.Y. custom suiting and apparel company Adrian Jules, told Sourcing Journal.
Adrian Jules brings in much of its fabrics and inputs from countries throughout Europe and Asia—now, all subject to double-digit duty increases. But there aren't many onshore options to turn to.
'In the '70s much of the U.S.A. textile industry was offshored to keep labor costs down,' Roberti said. 'Consequentially, the internal trimmings and exterior cloth was also made outside the U.S.A.,' and importing that arsenal of inputs is essential to business continuity.
Adding insult the injury of added tariff costs, some of Adrian Jules' overseas suppliers began notifying the company this spring that the duties would make doing business cost-prohibitive—even suggesting that the factory source from other countries and producers with a lower tariff burden.
'They were looking out for our best interests, but where are we to go?' Roberti said. 'Tariffs have been increased to most of our trading partners; changing suppliers would just mean we would pay tariffs to a different country.'
The firm, which sells private-label goods to New York City brick-and-mortars and runs its own custom suiting shops, is clinging to the upsides of the turmoil of the past eight months.
'There is a positive to this. We are seeing an increase in the demand for Made in U.S.A. garments. We just completed a strong Q2, and we are bullish on Q3,' Roberti said. 'I am hopeful that once all the dust has settled, American manufacturing has a resurgence, and the U.S.A. is in a stronger, more prosperous position for citizens and businesses.'
Newark, N.J. manufacturer Unionwear, which crafts hats, bags, promotional products and military gear, is also contending with higher costs—and working hard not to shift the sting of bloated prices to its customers.
'We are definitely absorbing tariffs,' owner and president Mitch Cahn said.
Part of the struggle stems from the changeability of tariff rates, revised or threatened on a near-weekly basis by the White House.
Within the company's business-to-business arm, 'We are selling goods before we order them, but the tariffs are changing after we have received an order but before we are shipping,' Cahn said, illuminating the complexity of setting prices. 'We are hedging a little bit and making sure we have alternative sources, but there really is no other way to do this.'
According to Cahn, the firm buys some of its fabric from India, which is slated to be hit with another round of 25 percent tariffs later this month, bringing the total reciprocal duty rate to a staggering 50 percent. 'We are planning to absorb the cost increases if necessary, but most likely we will shift purchasing to Pakistan,' he said.
Down the road elsewhere in Newark, Mitch Gambert, CEO and owner of Gambert Shirtmakers, is fretting over the future of his business due to the upheaval caused by the administration's ever-evolving trade policy.
'It's become borderline unmanageable,' he said. 'It's been literally eight months of utter confusion.'
The custom and wholesale shirting supplier hasn't been able to raise prices despite crippling increases to overhead costs (due predominantly to tariffs), along with compounding logistical challenges.
'The way that we work with our retail partners is that they set their [prices] for the season at the beginning of every season. So to go in and change pricing on them…it's a real disruption to the flow of business,' he said.
Gambert is also ambivalent about raising prices when consumer confidence is in the doldrums. 'I'm afraid that when the prices do go up, that people are going to be so sticker shocked that it's just going to have an even deeper impact on sales,' he said, noting that Gambert Shirtmakers' sales ledger is 'hovering at 30 percent less than where we should be' at this time of year. That doesn't bode well for fall or holiday, traditionally the manufacturer's boom time.
Gambert has even had to reduce working hours due to the slowdown—a concession he's making in order to avoid layoffs within his 90-worker facility.
'I have not had any surging American production because of tariffs, none whatsoever,' he said. That's because of a simple truth that thus far, the administration has neglected to acknowledge.
'It would be different if raw material prices weren't going up—then I could be more competitive with Asia,' he said. 'But with raw material prices going up, my prices are just going up in perfect sequence with the Asian prices. There's no competitive advantage for me.'
With steep new tariffs on trade partners across the globe compounding existing duties, something's got to give, he said. Even countries subject to the 10 percent universal baseline tariff could still see prohibitively high rates on certain types of products.
Gambert Shirtmakers imports much of its woven cotton for shirting from Europe, and the company pays a variegated rate between 18 percent and 19 percent depending on the characteristics of the fabric. Those same products will see added duties of 15 percent under the new tariff regime.
'We're also getting hit with the increases on our button supply,' which comes from China, he said. The manufacturer brought in a 'huge shipment' of product before the tariffs took effect, but charged its customers, like Gambert Shirtmakers, for the added cost of transportation and warehousing in the U.S. 'It forced me to put out a lot of cash up front to beat these tariffs before they hit, which absolutely kills cash flow. I mean, it's like a death kiss,' he added.
It's not just new costs that have thrown a wrench into the company's value chain. Longtime mill partners in Europe that once offered low MOQs and flexible terms are seeking out safer bets, opting for bigger sales to prominent players with more robust cash flow. 'I might do, let's say, $400,000 of business with one mill in the course of a year. But now you have the big brands who are doing $2.5 million of business with the same mill. Who's going to take priority?' he said.
Gambert is also facing a complex problem that many U.S. makers are contending with: their place in the market. At $280 or $350 a pop, the firm's custom shirts are a carefully considered purchase, not an impulse buy. 'For a lot of people who purchase my products, when they look at a gallon of milk at $11 and a full tank of gas at $90, those things are going to take precedence in their life,' he said.
For that reason, raising prices—however necessary—is a highly unpalatable prospect.
It's not just East Coast manufacturers feeling the burn. Across the country in Los Angeles, Lalaland owner Alex Zar is taking creative license to his business model in a bid to mitigate costs.
The founder of L.A.'s largest leather goods factory said he's seen increased demand for local production in recent months as the Trump trade agenda has taken hold. 'However, it's a double-edged sword—tariffs are impacting all our material imports, which in turn is driving up the cost of finished products,' he said.
The full-service manufacturer is pulling all the levers to make up for cost increases. 'We are working closely with our clients to design products so that materials make up the largest portion of the finished product cost, while labor is minimized,' he said. 'This helps absorb some of the increased costs from imported materials by reducing the labor share.'
In L.A., minimum wage is $17.87—far higher than most of country. Zar is uniquely positioned, having invested heavily in cutting-edge production technology and dabbling in automated processes that reduce the need for a high factory headcount.
The aim is to ensure that final product costs are aligned with overseas production—an objective the designer, merchandiser and factory collaborate to achieve during product development, he said. But it's not easy, especially when domestic capacity for manufacturing of footwear and handbags is so limited.
'Many factories have shut down as production shifted overseas, which limits available resources for local manufacturing,' he said—ergo, the need to rely on foreign partners for the parts and pieces that make up his creations.
Another L.A. native and owner of Lefty Production Co., Marta Miller, co-signed the observation that raw material costs have risen 'across the board' since the onset of the trade wars.
'Fabrics, trims, and certain imported components are all more expensive now, and machinery pricing is also increasing,' she said, attributing the increases to new duties and other supply chain constraints.
'China is by far the most impactful when it comes to tariffs,' Miller, who also owns Austin-based manufacturing body Stitch Texas, said. 'Many of the fabrics, trims, and certain categories of apparel we source have traditionally come from China, and the duties there have had a significant impact on landed costs,' she added, noting that sourcing from Vietnam and India has also been challenging.
'I have tried to avoid raising prices dramatically for my clients,' the factory owner said. 'My goal is to manage these cost increases in a way that softens the impact on their businesses, so they can continue to grow. That said, modest adjustments have been necessary in some cases, and I would expect to see some additional increases if tariffs and input costs remain high.'
Despite the intricacies of maintaining a balance sheet with ever-shifting line items, Miller maintains that tariffs have, on the whole, given her a leg up.
'Clients who previously defaulted to overseas production are now giving serious consideration to producing here at home, and I am leaning into that opportunity,' she said. Emphasizing speed-to-market, lower shipping costs and better quality control has indeed driven new business to California and Texas over the past eight months, Miller added.
'The increased cost of overseas production for certain categories has encouraged some brands to explore domestic manufacturing for the first time. We've seen new clients coming to Lefty Production Co. and Stitch Texas specifically because the tariff environment has tipped the scale toward U.S. production,' she explained. 'It's an unexpected win that's helping offset some of the challenges.'
