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Frank  Beal's avatar

We import components used by manufacturers (assemblers). We held prices while we sold off pre-tariff inventory, and our prices have now increased. Our customers will soon be putting higher cost products out for sale, and they will not take a margin hit - the higher prices are coming.

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Matt Schulz's avatar

This is super interesting and insightful, Claudia. Thank you for breaking this all down.

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Bradley Schott's avatar

Having worked in apparel many (many) years ago, the markup at each distribution point is about 100%. So plenty of scope to meet the market. Turnover is the name of the game, and stock must be moved at any price. Margins will only really be affected when stock *stops* moving, wages and rent will then eat the profit, and retail chains will abandon tenancies (and staff).

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Winston Smith London Oceania's avatar

Dang, I should have read your comment before posting mine. You beat me to it.

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Lindy Hubert's avatar

We are not buying stuff. I have cut back especially hard on buying new clothes. Fast fashion is out of fashion. Economists, we are just NOT cooperating with consumerism like we once did. For me, that change is permanent. Don’t think I’m alone.

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Winston Smith London Oceania's avatar

I'm certainly with you on this. Undercapitalization notwithstanding, I buy only what I absolutely need.

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ADIL SAYEED's avatar

Excellent deep dive. Would be interesting to see the same look at vehicles.

Also, the impact of the steel and aluminum tariffs as intermediate inputs feed through to final consumer prices. Not suggesting that you should do those jobs, Dr. Sahm. But, I'm sure we'll see analysis of those sectors soon from lots of people.

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Winston Smith London Oceania's avatar

Well, we know of one vehicle that's taking a big hit - TE卐LA!

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Alan Neff's avatar

All the chaos generated by the Trump administration on every imaginable front - including international trade - has a potential latency component with a corresponding component of unpredictability. That said, thanks for providing, as always informative data and useful analysis.

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Winston Smith London Oceania's avatar

Consumer prices have a built in "buffer", AKA a markup. Companies try to maximize their profit margins, so they charge whatever they can get away with. Manufacturer charge what they can get away with, wholesale distributors mark it up as much as they can get away with, and finally the retailers mark up as much as they can get away with - sometimes as much as 80%.

Thus, when you see a "sale" of "10% off!" it's 10% off the already grossly inflated markup, and the business still makes out like a bandit. This applies to the tariffs as well. Just my casual observation.

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Scott M's avatar

The graph that shows overall prices have declined….does that figure adjust for a changing marketbasket of goods? Buying less dress suits and more T-shirts, etc…

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Claudia Sahm's avatar

No, the weights on the basket are only changed once a year in the CPI.

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Piya Sachdeva's avatar

what does a smaller pass through - of that is the case - mean for recession risk? lower because the consumer is not hit as much or higher via labour market dynamics (hiring etc.) to preserve margins. Would be interested to hear your thoughts!

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Michael J. McGowan's avatar

Electrical distributor- last Trump Administration announced 25% tariff on Chinese steel.

Our pipe suppliers immediately increased prices by 25%. Didn’t matter where the steel came from. Our industry has no place to absorb such costs, can only mark them up and pass them along. Immediately.

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Alexander Fernandez's avatar

Great breakdown. Do you think the muted apparel price response reflects a broader underestimation of demand weakness in the consumer economy?

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Scott Whitmire's avatar

Mostly that I can wear the clothes I have for another few years.

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manggom's avatar

3은 신이야

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JDub's avatar

I like this analysis. Makes good points.

But I think reading it as insane level tariffs possibly being ok as a policy if inflation is less than predicted would be a mistake. I don’t think that’s the intent of the author but I know some will do so for political ideological reasons.

Margin shrinkage doesn’t sound like a good thing to me, especially if tariffs are the cause.

Negative economic impacts to suppliers doesn’t sound like a good thing to me, given the global nature of our economic activity.

And certainly slackening demand in consumer markets isn’t a good thing.

Doing all of that to pay for more tax cuts to the uber wealthy?

Doubly bad.

And that seems to me to be true even if we don’t get inflation.

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Steven  VanHeyningen's avatar

It tells me that the Keynesian Economists, that thought we'd have Tariff-related Inflation,

have been dead wrong, so far...

Tariffs are mainly Deflationary.....I will say it, again...

You don't need a PHD to understand that.....

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Jun 19Edited
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Steven  VanHeyningen's avatar

So genius, why has the 10 year yield dropped, if Inflation is coming, like you and her think??

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JDub's avatar

Deleted my comment because it was inflammatory. Sorry I wasn’t fast enough.

That said I’m not sure why you think the yield has “dropped”. It was almost a point lower in October 24.

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Steven  VanHeyningen's avatar

10 year yield end of October 2024 was 4.28%

January 13th it was 4.80 %

Today it's 4.39%

The Bond market is not pricing in higher inflation.

It doesn't agree with her forecasts and neither do I.

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JDub's avatar

Well, you sound like your econ is informed by your politics, rather than the Econ.

10 year yield was not that high at the end of October looking at market watch. Seems more like right at 4%, up from 3.7% or so the month prior. But it’s been bouncing around 4% since it initially went up when inflation took hold back in 22 or so.

The real problem is that this time the spike has come with a decrease in the value of the dollar.

So, while we haven’t seen inflation from tariffs yet…

We are seeing capital flight. And that signals a lack of confidence in the USA.

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yasa uenaka's avatar

So was Trump right in saying "foreigners would pay for tariffs"?

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Claudia Sahm's avatar

Overall import prices are not down, but apparel does look like an industry where foreigners are paying a portion (so far).

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Bob Brown's avatar

Pay to play, would you rather be busy and feed your family or laid off and watch them go hungry?

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