If the economic headlines have been giving you whiplash lately, you’re not alone. Every day seems to bring another development that could impact small businesses—from inflation and interest rates to tariffs and global conflicts. To help make sense of the small business economy, I checked in with Ben Johnston, COO of Kapitus, a small business lender, to separate the short-term noise from the trends business owners should really be watching.
Rieva Lesonsky: The PPI fell 0.3% from May to June on lower gas prices, but is the optimism short-lived, given that the war in Iran continues?
Ben Johnston: Expert consensus is that June’s drop in PPI will be short-lived, as the primary reason for the drop was related to declining energy and food prices. Unfortunately, energy prices are climbing again, driven by renewed hostilities in the Persian Gulf. Food prices are expected to rise as well given agriculture’s heavy reliance on oil and gas in production and delivery.
There are also many critical industrial commodities such as aluminum, helium, and agricultural fertilizers that are manufactured in the Gulf region and whose prices have increased significantly as a result of the war with Iran. Each of these commodities drives up costs for American businesses, which in turn must be passed on in the prices charged to consumers. Aside from the temporary drop in energy prices, it is worth noting that the services component of PPI actually rose by 0.2% in June despite benefiting from lower energy costs.
Lesonsky: What do you think the PPI figures mean from both a consumer and a commercial real estate perspective?
Johnston: Consumers can take some comfort in the fact that both PPI and CPI dropped slightly in June. However, both indices remain significantly above the annual inflation targets set by the Federal Reserve, and most experts expect the declines seen in June to be temporary.
If inflation continues to rise in the coming months, the Fed will come under increased pressure to raise interest rates, which will help slow inflation but will also slow economic growth. This could mean slower hiring and wage growth, which would in turn place pressure on consumer spending.
Higher interest rates also depress asset prices and raise the cost of financing new projects, which has a negative impact on the commercial real estate sector. Occupancy rates are also likely to suffer from any slowdown in economic growth, placing additional pressure on commercial real estate.
Lesonsky: The Trump administration has imposed a new round of tariffs. What do these latest changes mean for small businesses?
Johnston: As soon as the Supreme Court ruled in February that the Trump Administration’s use of the IEEPA to impose tariffs was unconstitutional, the Administration made it known that they intended to find other means to impose tariffs on goods imported to the United States.
The Administration immediately imposed Section 122 of the Trade Act of 1974, levying tariffs for up to 150 days to correct “fundamental international payment problems.” As these tariffs have begun to expire, the Administration is seeking other methods for imposing tariffs, including imposing Section 301 of the Act, which requires trade investigations but would not be restricted to a 150-day time limit, making them more durable and sustainable.
While small businesses may have received some temporary relief from the Supreme Court’s decision, tariffs never really went away for most importers, and few small businesses resurrected business models that were dependent on a completely free trade environment. As a result, we expect these new tariffs to be largely factored into most business models, and we expect to see a continued repatriation of manufacturing back to the United States or other near-shore trade partners such as Mexico and Canada, where tariffs on imported goods tend to be lower.
Rieva Lesonsky is the founder of Small Business Currents, a content company focusing on small businesses and entrepreneurship. You can find her on Twitter @Rieva, Bluesky @Rieva.bsky.social, and LinkedIn. Or email her at Rieva@SmallBusinessCurrents.com.
Photo courtesy ChatGPT