After President Trump enacted tariffs this spring, stocks tumbled on fears that higher import taxes would crimp corporate profits, leading to layoffs and potentially sending the US economy into recession.
Fast forward to now, and those dire forecasts were undeniably wrong for corporate America; unfortunately, they appear more spot on for workers.
The S&P 500 has rallied about 35% since tumbling 19% this spring during the so-called Tariff Tantrum. Despite the effective tariff rate skyrocketing to 18% from 2.4% in January, according to Yale Budget Lab, companies are pocketing more money than ever as tariff headwinds have been more than offset by cost-cutting efforts, including layoffs.
Year-to-date, through October, U.S. employers have announced 1.1 million layoffs, according to Challenger, Gray, and Christmas, representing a 65% year-over-year increase. In October, 153,074 workers lost their jobs, a 175% increase year over year, marking the highest number in October since the Internet bust in 2002.
Layoffs by month (2025):
- October: 153,074
- September: 54,064
- August: 85,979
- July: 62,075
- June: 47,999
Source: Challenger, Gray, & Christmas.
The dynamic could be putting the economy at a critical crossroads. US economic activity is overly reliant on a flood of money being spent on artificial intelligence, rather than other, more traditional drivers, and record-low consumer sentiment could suggest a looming reckoning on deck in 2026.
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U.S. corporate profits skyrocket
To tackle significantly higher tariffs, companies have pulled three levers:
- Negotiating lower prices with suppliers.
- Absorbing the extra costs from profits.
- Passing along higher costs to consumers.
Suppliers haven’t been willing to reduce prices enough to offset tariffs fully, so companies have had to lean heavily on reducing costs elsewhere and implementing price increases to limit the bite of tariffs.
The third-quarter earnings season shows those moves have more than paid off for corporate America. S&P 500 member companies’ profit margins are at record highs, and profits have surged by a double-digit percentage in the past year, according to a Bank of America research note shared with TheStreet.
More Jobs:
- Layoffs commence at two major tech giants
- Home Depot raises alarm bells with unexpected closure, layoffs
- Amazon makes cold move that raises nationwide workplace fears
S&P 500 corporate net margins, excluding financials, reached 13% in the third quarter, with 90% of S&P 500 companies reporting results. That eclipsed the prior record 12.7% rate during the third quarter of 2021.
Overall, out of the 453 S&P 500 members who have reported third-quarter figures, 61% beat Wall Street estimates on the top and bottom line, solidly higher than the long-term trend of 41%.
Altogether, a bottom-up analysis of earnings that combines reported results with estimates for the remaining companies projects earnings per share growth during the quarter at 13% compared to one year ago. Exclude Meta Platform’s one-time charge that dragged down its earnings, and growth was an even more impressive 15%.
Following the stronger-than-hoped earnings performance, Wall Street has lifted its fourth-quarter earnings outlook to yet another quarter of double-digit growth.
US consumers take hit as companies cut costs, boost prices
The shutdown in D.C. means we haven’t received an update on the Bureau of Labor Statistics’ jobs report, but unemployment was 4.3% in August (the most recent data available), the highest since 2021, and up from a low of 3.4% in 2023.
Most consumer goods companies, from AutoZone to Hoka-parent Deckers Outdoor and Nike, have raised prices on at least some of their products. Major retailers, such as Walmart, Amazon and Target, have also passed along price increases. Overall, prices tracked on hundreds of thousands of commonly purchased products have increased by 6.14% more than expected based on trends leading up to tariffs, according to Harvard Pricing Lab data.
Unsurprisingly, those price increases have lifted the Consumer Price Index inflation rate to 3% in September from 2.3% in April before most tariffs were enacted.
The combination of job losses and inflation has taken a toll on consumers, forcing them to tighten their budgets and eroding consumer sentiment.
A decline in consumer discretionary income has led to slower foot traffic at many businesses, particularly those heavily reliant on lower-income earners who are bearing the brunt of job losses and inflation, and who are less likely to own homes or benefit from rising stock prices. Fast-food restaurants, for example, are under significant pressure, with Wendy’s recently announcing it will close 300 stores next year.
It doesn’t appear to be getting much better. The University of Michigan’s consumer sentiment survey index declined nearly 30% in November. The 50.3 reading was the second weakest in University of Michigan survey history since 1978.
“This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation,” wrote the University of Michigan economists.
Related: Major retailers have jacked up prices due to tariffs
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