NY Fed: Businesses Are Already Passing Along Tariff Costs to Consumers

Just before tariffs took root in April, PYMNTS Intelligence found in its “Certainty Project” report that a majority of firms across various sectors anticipated higher costs. At the time, 42% of services firms said they were considering raising prices on their products, and 3 in 4 said they planned to reduce operational costs.

Now, new data from the Federal Reserve Bank of New York released Wednesday (June 4) show that companies in the service sector, and in manufacturing too, are raising prices on tariffed goods and that businesses adjusted operations by changing sourcing locations, modifying inventory levels, and in many cases, saw a decrease in their bottom lines.

Three-quarters of companies across manufacturing and service industries have passed along their higher input costs to end customers.

Drilling down a bit, a significant percentage of companies — nearly a third of manufacturers and about half of service companies — said they had passed all of those higher costs to consumers.

“Interestingly, a significant share of businesses also reported raising the selling prices of their goods and services unaffected by tariffs,” according to the report, which focused in the New York and New Jersey region (which is the purview of the New York Fed).

What’s Driving the Shifts

The choices have been influenced by various factors, including market competition, anticipated customer reactions and the imperative to maintain profit margins.

At the time of the survey, which was fielded before significant tariff changes on Chinese goods and court decisions at the end of May, manufacturers estimated their average tariff rate across imported goods was 35%, representing a roughly 25% boost from six months prior.

The data show that service firms reported an estimated average tariff rate of 26%, an increase of 17 percentage points over the same period, aligning with other estimates of the average effective tariff rate facing U.S. firms.

Tallying the Cost Increases

Consequently, manufacturers indicated that the cost of their tariffed goods had risen by an average of about 20% over the past six months, while service firms reported a roughly 15% average cost increase.

At the other end of the spectrum, approximately a quarter of firms in both sectors reported absorbing all tariff-related cost increases without raising their prices.

A Swift Reaction

For firms that did raise prices due to tariffs, the speed of adjustment was noteworthy. Over half of both manufacturers and service firms reported raising prices within a month of experiencing tariff-related cost increases, with many implementing changes within just a day or week.

Another quarter indicated they had either raised prices or planned to do so within one to three months of such cost increases, while few businesses were waiting longer than three months. This suggests a rapid transmission of tariff costs into consumer prices.

Higher tariffs also influenced sourcing decisions. As might be expected, a significant share of businesses reported increasing purchases from within the United States and a similar share reported a decline in imported goods. Inventory levels were also affected.

Just under a third of manufacturers and service firms reported increasing their inventory levels, partly to get ahead of rising tariffs and build a buffer against potential supply shortages, the Fed said. Conversely, about 15% reported declining inventories, possibly drawn down as some customers moved purchases forward to build their own inventories and preempt tariff-related price increases or supply disruptions.

The overall effect on profitability was significant, with almost half of businesses reporting a decrease in their bottom lines.

About half of service firms expected tariffs to move higher in the next six months, while about a third expected them to decline. Among manufacturers, about a third anticipated tariffs to increase, but more than half expected them to decrease — which may, we’d add, indicate more sticker price volatility in the months to come.