Trend watch
Summer is beginning to wind down as football training camps are underway and schools have restarted in much of the Southern and Southwestern United States, as well as parts of Indiana, Kentucky, Nevada, and Missouri. Classes resume in the East North Central, Pacific Northwest, and West South Central within the next two weeks. The Mountain and West North Central areas will start mid-month, while the Northeast and Mid-Atlantic regions typically hold out until the last week of August or the first week of September.
Most U.S. travel data has peaked and should increasingly decline as more schools start classes. Both hotel occupancy and air passenger counts passed their highest points for the year, as air passenger counts dropped for the second week in a row, down 1.6% to 19.2 million. Both metrics are projected to gradually fall over the next five weeks before stabilizing in early to mid-September for several weeks. Travel typically begins to decline again in late October and continues until about a week before Thanksgiving, which falls on November 27th this year—a relatively late date.
Despite softer demand from Canadian travelers this summer, overall year-to-date travel results remain slightly ahead of 2024, which was a strong year. For example, although hotel occupancy peaked two weeks ago, it was at 69.5% this week—higher than in the first week of August in either 2023 or 2024. (Occupancy in 2019 peaked roughly seven percentage points higher.)
Our take
Late summer also ushers the back-to-school shopping season, which we view as an especially significant milestone this year due to tariff-related disruptions. This period began in early July – not-so-coincidentally aligning with Prime Day sales and the many copycats – and will continue through late August.
The National Retail Federation (NRF) expects to ring up $128.2 billion in back-to-school sales this year (slide 7). That’s about 2% above 2024. More importantly, a recent NRF survey showed that 67% of respondents had started their back-to-school shopping in early July. That’s 12 percentage points higher than last year and 23 percentage point higher than 2019. Moreover, more than 55% of it will be done online.
Like many shopping trends this year, we suspect that the reason for the earlier jump is an attempt to front run tariff-related price increases, particularly for imported items such as electronics, clothing, and shoes – which are also the top three categories for back-to-school shopping. Additionally, several other consumer surveys indicate a high percentage of shoppers concerned about empty shelves. However, as we show on slide 8, retail inventories were steady overall coming into this period, seemingly having navigated tariffs adequately thus far (the data is through May 2025).
Furthermore, there appears to be another wave of freight hitting U.S. shores in July. On slide 9, we show a 34% surge in container traffic last month at the Port of Long Beach, which is the second busiest U.S. port.
The key takeaway points. First, prices will likely increase due to tariffs. While painful, that won’t be catastrophic. More importantly, despite many headlines to the contrary, the actual tariffs collected remain relatively limited. In fact, less than half of all U.S. imports are currently subject to tariffs.
The best example of this is Canada. Announced tariffs on Canada were 25%, excluding energy products, which will be subject to a 10% tariff, and both were effective February 4, 2025. On August 1st, the tariff rate jumped to 35%. Yet, recent trade data shows that approximately 90% of Canadian goods are considered compliant with the United States-Mexico-Canada Agreement (USMCA), meaning they are duty-free or subject to minimal tariffs. Thus, the effective tariff rate on Canadian goods is 2.4%.
As an aside, this is also likely the primary reason why there haven’t been significant price increases flowing through into the inflation data (yet). We say “yet” because there will be some increases depending on the product, which are beginning to see evidence of within the inflation data. That said, again it’s not nearly as bad as feared.
Lastly, there continue to be distortions due to tariffs. Thus, we’re keenly watching the retail sales data to gauge where consumer demand is really trending. As we’ve discussed here recently about the July jobs report, the previous signs of economic strength were a mirage, while lackluster data potentially exaggerates the extent of the weakness. We suspect that the true trend is somewhere in between.
Bottom line
The U.S. economy remains in a muddle-through environment. Economic data will continue to jostle due to air pockets as demand normalizes following accelerated purchases by consumers and businesses attempting to front-run tariffs. While we don’t believe that tariffs will be catastrophic for the U.S. economically, they will certainly continue to distort behaviors and, in turn, the economic data.
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