Macroeconomic Overview: The U.S. made another update to tariffs on July 24. For many locations, tariff rates were not adjusted too dramatically. Prior to the latest change, many locations were subject to tariffs that were ten percentage points higher than the most-favored nation (MFN) or base rates that were in effect before 2025. With the latest change, many locations now face additions of 10 or 12.5 percentage points on top of MFN rates.
A potentially significant revision with the latest update was a change in the legal justification for tariff increases. The latest set of tariffs were justified under Section 301 and replaced those enacted under Section 122. The Section 122 tariffs were put into effect in February after the Supreme Court revoked the duties under the International Emergency Economic Powers Act (IEEPA). However, action under Section 122 includes a 150-day time limit before requiring congressional approval. These tariffs were due to expire when Section 301 tariffs were implemented.
Section 301 has been used to justify tariffs in the recent past, notably the increases on imports of goods from China in 2018 and 2019. These tariffs have endured through administrative reviews and legal challenges. Nonetheless, court cases have already been launched against the legality of the latest set of Section 301 tariffs.
Along with tariffs, higher energy costs stemming from renewed hostilities around the Persian Gulf can contribute to inflation. With rising prices, inflation has exceeded wage growth since April and could eventually pressure consumer spending. Rising inflation also complicates the decision-making process at the Federal Reserve, which will need to balance efforts to slow inflation against those to support the labor market.
Employment: The U.S. economy is estimated to have lost 23,000 jobs in July. This was the first monthly decrease in payrolls since February 2026 (-156,000), but there were five months with net reductions in jobs in 2025 (January, June, August, October, and December). Apart from February, job growth was stronger in the first half of 2026 than it was in 2025. The year-to-date average for 2026 excluding February and July is +121,000. Including these months with job losses in 2026, the average monthly change is +61,000. In 2025, the average monthly change was +10,000.
Despite the reduction in jobs last month, the unemployment rate fell from 4.2% to 4.1%. The unemployment rate is defined as the ratio of the number of unemployed people to the number of people in the labor force. Since November, there has been a decrease in the number of people wanting to work. Relative to the recent peak in November (171.5 million), the current size of the labor force is down nearly two and a half million people (to 169.1 million). Reductions in the labor force have been a factor holding the unemployment rate at lower levels.
Wage growth was 3.5% in July. This is similar to the levels recorded over the three previous months but is below many of the rates posted since 2020. With the slowdown in income growth and the acceleration in inflation, wage growth slipped below the rate of overall inflation in April. Stronger growth in prices relative to incomes may become a challenge for consumer spending.
Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence® decreased slightly (-1.4 points) to 90.8 in July. This reading is within the general range between 90–100 that has contained values over the past twelve months. Recent values have been concentrated at the lower end of this range.
Overall consumer spending (inflation-adjusted) increased 0.4% month-over-month in June. Year-over-year, overall spending was up 2.5%. Spending on garments (inflation-adjusted) was up 1.1% month-over-month for the second consecutive month in June. Year-over-year spending on apparel was 4.5% higher, which is nearly twice the long-term average.
Consumer Prices & Import Data: After ten consecutive month-over-month increases, the CPI for apparel decreased in June. Nonetheless, recent price levels remain the highest since the late 1990s (nominal terms) and about five percent higher than they were one year ago.
The average cost per square meter equivalent (SME) of cotton-dominant apparel increased marginally month-over-month from May to June (from $3.69/SME to $3.71/SME, seasonally-adjusted). In seasonally-adjusted terms, prices have been relatively stable around $3.70/SME since late 2023. This level is about 12% higher than the costs around $3.30/SME that were common before the pandemic. On top of higher costs for goods, tariffs are currently adding 10% to 12.5% of customs value to sourcing costs.