After months of uncertainty brought on by trade tensions and tariff threats, the American economy is showing signs of renewed strength. Consumers and businesses alike are shaking off the anxiety of spring’s economic chill — and they’re starting to spend again.
Earlier this year, many feared the worst. President Trump’s sweeping tariffs on imports had sent shockwaves through financial markets. Consumer sentiment plunged, and the S&P 500 fell nearly 20% between February and April. The outlook was grim: higher prices, frozen spending, and the specter of recession loomed large.
But that gloomy forecast hasn’t played out.
Instead, data now suggests that Americans who hit pause on big purchases are pressing play once more. The stock market is climbing to record highs. Retail sales have surged beyond expectations. The University of Michigan’s consumer sentiment index — which had hit a three-year low in April — is bouncing back. Inflation, while still a concern, has not surged as feared.
“We’ve consistently underestimated the resilience of the American consumer,” said Jonathan Millar, senior U.S. economist at Barclays. Millar, who in April had warned of a likely recession, has revised his outlook and now sees slow but steady growth ahead.
That renewed optimism is evident in households like that of Tyler Ahn, a 46-year-old product manager from Portland, Oregon. Alarmed by Trump’s escalating trade rhetoric earlier in the year, Ahn stocked up on survival gear and slashed her discretionary spending. But by summer, her mindset had shifted.
“I decided, ‘It is what it is — my money will buy what it will buy,’” Ahn said. She recently returned from a carefree two-week vacation in Italy and France, where she spared no expense on food, lodging, or experiences — even with a weaker U.S. dollar.
The broader economy is still navigating some turbulence. Economic growth remains modest, and inflation — though down from post-pandemic highs — is still above the Fed’s preferred target. Manufacturing activity continues to contract, and fears around immigration enforcement are weighing on Hispanic consumer spending.
While Trump has walked back some of the more aggressive tariff hikes proposed in April, the risk of steeper levies remains. Just this month, he threatened to impose 30% tariffs on imports from the European Union and Mexico, effective August 1.
Nevertheless, the sentiment among businesses is beginning to shift.
JPMorgan Chase reported stronger-than-expected earnings last week and said it no longer anticipates a recession. “After the initial shock of the tariff announcements, a lot of companies and consumers just froze,” said CFO Jeremy Barnum. “But there comes a point where you have to move forward — and that seems to be what’s happening now.”
Card spending at JPMorgan is up 7%. Other financial giants — including Bank of America, Citigroup, and Goldman Sachs — also reported rising profits. United Airlines noted a pickup in travel demand. An upcoming wave of corporate earnings reports is expected to paint a clearer picture of the economy’s direction.
A July survey by Constant Contact of over 1,200 U.S. small-business owners found that 44% saw stronger-than-expected demand for their products and services. One-third reported high optimism for the next three months, and nearly the same percentage said they planned to expand their teams.
Job creation has been uneven, with private-sector hiring slowing. But the national unemployment rate remains relatively low at 4.1%, largely because companies have held off on significant layoffs.
Command Education, a college admissions consulting firm based in New York City, has experienced an unexpected summer boom. CEO Christopher Rim said the firm saw more client enrollments during the first week of July than any month since January.
“People were hesitant to commit back in spring — the markets were just too volatile,” said Rim. “But now, even our most cost-conscious clients are ready to move forward.” The company has already hired three new staffers this month and is planning for more.
Consumers’ outlook on inflation has also moderated. In April, the University of Michigan survey showed Americans expected inflation to hit 6.6% in the year ahead. That estimate has dropped to 4.4% in July.
Still, economists warn that the effects of tariffs could take time to filter through. Michael Feroli, chief U.S. economist at JPMorgan, pointed out that it wasn’t until late 2019 that Trump’s 2018 tariffs began curbing business investment. “Some of these reactions are delayed,” Feroli noted.
Prices for certain tariff-sensitive goods — like toys, apparel, and furniture — are starting to tick up, suggesting that companies are beginning to pass the added costs on to consumers.
Business owners remain cautious but are adjusting rather than retreating. Aaron Anderson, who owns the Sunrise Social brunch franchise, says that while he’s still hesitant to invest in major expansion projects, he’s ramping up spending on marketing and improving service at his existing locations.
“I’m still optimistic in the long run,” Anderson said.
That sentiment is echoed by Christian Reed, who launched Reekon Tools — a hardware startup — during the pandemic. Reed put new manufacturing orders on hold this spring due to tariff concerns, as his supply chain includes factories in China and Thailand. But by July, he decided to move forward.
“There was a lot of talk about prices skyrocketing, but none of that’s really happened,” said Reed. With a second child on the way, he and his wife had also been putting off replacing their compact SUV. “We finally decided to go for the bigger car,” he added. “You can’t just stay in a holding pattern forever.”
