Tariffs Are Already Creeping Into US Economic Data

Those searching for evidence of the Trump administration’s tariffs on imported goods in the economic data have been left wanting.

Inflation in April as measured by the Consumer Price Index was under control, rising 0.22% overall and 0.24% when excluding food and inflation. Both were in line with economists’ estimates and roughly consistent with the Federal Reserve’s targets. On a three-month annualized basis, inflation was 1.6% overall and 2.1% for the core rate.

The White House and defenders of its trade strategy celebrated the results as evidence there will be little to no economic hardships from tariffs. To be sure, it’s way too early to declare victory. Let’s give the economy a few more months before we pop the champagne.

Even before the temporary trade détente earlier this month with China, I was slightly less pessimistic of the effect of tariffs on the economy than many observers who were calling for a recession to start this year while also staying sober about the risks. That said, it may take several months to see the fuller impact of tariffs in the data, which is often reported with a lag.

Not since the 1930s has the effective tariff rate been as high as it is now at 18% implied by current policy, so the US has little recent experience to draw on when it comes to high overall tariffs. We do know, however, based on experience over the last decade with tariffs on individual products that it can take months for the effect to show up in economic data. In January 2018, the first Trump administration announced levies on imported washing machines ranging from 20% to 50%. Spending on such goods immediately surged 3.6%, as consumers tried to beat the tariffs, but it wasn’t until April that the CPI for laundry equipment rose substantially, more than two months after the tariff was announced.

There is reason to believe that might happen again. Especially with durable goods, retailers will often burn through pre-tariff inventory first before turning to higher-cost, post-tariff inventory. Consumers try to front-run tariffs, increasing purchases before they go in effect and reducing them just after tariffs hit. New orders made after the tariff may take weeks due to shipping times. All these factors lead to delays to the levies being reflected in new data.

Another is because tariffs often don’t typically ramp up to full strength immediately, due to delays in the collection of levies or pauses tied to pending trade talks. This is currently the case. Based on actual federal tariff revenue, the average effective rate in April was about 4.5% and preliminary data for May suggests it was around 6.5%. Current tariff policy, even after the China “pause,” suggests an average rate of 16% to 18% (and 21% to 22% if President Donald Trump follows through on his threat of 50% tariffs on the European Union). In other words, tariffs weren’t biting at full strength in April or May, which means it will likely still be hard to see signs of the effect of tariffs in the May economic data.

Nevertheless, we have seen some signs in the data consistent with tariffs, if not dispositive yet.

First, the CPI was more of a mixed bag with regards to tariffs rather than a solid rebuttal. Apparel prices fell by 0.2% in April, which is telling given how much apparel the US imports, from China in particular. But electronics and furniture prices — goods also highly exposed to tariffs — rose 0.75% and 1.5%, which are unusually big increases for those categories.

Tariffs are likely also showing up in more high frequency price data. Findings scraped from large US online retailers and compiled by economists Alberto Cavallo, Paola Llamas, and Franco Vazquez suggest that domestic-origin goods prices are up roughly half a percent since early March, while foreign-origin goods prices are up more than two percent. The timing of these price increases lines up almost exactly with White House tariff announcements in March and April.

The potential presence of tariffs in the economic data is not limited to prices. Inflation-adjusted retail sales jumped 1.9% in March but fell 0.1% in April. Industrial production meanwhile has been weak, falling 0.25% in March and then coming in essentially flat for April. New orders for manufactured durable goods plunged 6.3% in April, their biggest slide since January 2024, after spiking 7.6% in March.

Monthly data are volatile so neither of these are dispositive. The first estimate of real gross domestic product growth for the first quarter was weak at negative 0.3%, though this was mainly due to timing shifts of consumers and businesses around tariffs rather than any direct effects.

It's tempting to draw sweeping conclusions from the first few months of data, but history and economics both call for patience. Tariffs have a way of creeping into the numbers with a lag, and we haven’t seen policy like this in almost 100 years. For now, the prudent approach is to watch the data unfold, remain humble about what we know, and resist the urge to draw conclusions.

Source: Bloomberg Europe