Tariffs Threaten 2025 Holiday Sales With Higher Prices, Job Cuts

A KPMG survey reveals U.S. tariffs are significantly impacting businesses, with one-third reporting declining sales and nearly 40% seeing shrinking gross margins, compounded by retaliatory tariffs causing 6-25% foreign sales declines. Firms are increasingly passing over half of tariff costs to consumers, with most anticipating further 5-15% price hikes, while 77% lack confidence in tariff stability, leading to hiring freezes and workforce reductions. This uncertainty points to higher consumer prices, increased job anxiety, and a weaker discretionary spending environment, prompting retailers to adopt defensive inventory strategies.

Analysis

A recent KPMG survey of senior executives reveals that U.S. tariff policies are creating significant headwinds for U.S. businesses, manifesting as both top-line and bottom-line pressures. Approximately one-third of firms report declining or deferred sales, while nearly 40% are experiencing shrinking gross margins. The impact is compounded by retaliatory tariffs, with a majority of companies citing sales declines of 6-25% in foreign markets. This cost pressure is being directly transmitted to consumers, as 21% of companies now pass on more than half their tariff costs, and a combined 71% of executives anticipate raising prices by up to 15% in the next six months. This environment of sustained uncertainty, with 77% of executives lacking confidence in tariff stability, is actively discouraging long-term capital investment and prompting defensive corporate actions. These include significant labor market adjustments, with 38% pausing hiring and 44% having already reduced their U.S. workforce. Consequently, the outlook for the consumer economy, particularly discretionary spending, is deteriorating, as rising prices and increased job anxiety are expected to dampen demand. Retailers are responding by prioritizing risk management over growth, adopting cautious inventory strategies that will likely result in fewer promotional discounts during the holiday season.

Key Decisions for Investors

• Investors should exercise caution with consumer discretionary stocks, as the combination of rising consumer prices and growing job anxiety points to a weaker environment for non-essential spending, especially heading into the holiday season.
• Scrutinize companies with significant international supply chains or high exposure to export markets, as they face dual headwinds of direct tariff costs and retaliatory actions that are compressing gross margins for nearly 40% of firms.
• Consider increasing exposure to defensive sectors and companies with strong pricing power, as the pervasive uncertainty is forcing businesses to slow hiring and investment, favoring firms that can protect profitability in a stable but low-growth environment.