We’ve talked about tariffs plenty in the context of manufacturing and consumer goods — the stuff people buy. But what about that much larger chunk of the economy: services?
Growth in the service sector declined in March, compared to the month before, according to a report out Thursday from the Institute for Supply Management.
The report showed the slowest growth for services since last June. That’s in part because business leaders were concerned about — yes — tariffs.
Let’s start with tech. Software services aren’t subject to tariffs. But they will be affected, said Dan Ives, a tech analyst at Wedbush Securities.
“It’s about the recessionary and global growth fears weighing on ‘em,” said Ives.
Take digital advertising. When the cost of the stuff in the ads goes up, people buy less of it.
“If you cannibalize 10 to 15% of demand, that could cut digital advertising for Meta, Google and other players in social media,” said Ives.
Next, there’s food service. Rich Shank with consulting firm Technomic said restaurant owners are feeling OK right now, in part because their ingredients are more substitutable than, say, a clothing retailer’s.
If you run a burger joint and your imported patties get more expensive, “you can make swaps on your cheeses or your lettuce,” said Shank. “You might be able to soften the blow a little bit.”
Then there are bigger-ticket services.
Jan Freitag, a travel analyst with the CoStar Group, said international travelers put off by the whole trade war thing might not come to the United States at all.
“ We’ve already seen some of that close to the Canadian border, where room demand has actually declined,” said Freitag.
He said domestic travel could slump too, because it’s a nice-to-have service. And tariffs could raise the cost of must-have items, like food and fuel.
“That then eats into people’s discretionary spending,” said Freitag.
He said that doesn’t bode well for the hotel industry heading into the summer travel season.
