Sales outlooks have softened, particularly for exporters
The trade conflict is weighing on firms’ sales expectations, putting a halt to recent improvements. While interest rate reductions had supported past sales growth, businesses are less optimistic about the future than they were last quarter as trade policy clouds the horizon.
Indicators of future sales (e.g., order books, advance bookings and sales inquiries) remain stronger than they were a year ago, but the balance of opinion has declined from last quarter (Chart 3, red line). This lower balance reflects recent improvements in demand being partially offset by the negative effects of trade uncertainty. Similarly, businesses still expect sales growth over the coming year, but fewer firms than last quarter anticipate it will strengthen (Chart 3, blue bars).
Around 40% of firms expect lower sales growth if tariffs are implemented (Box 1). Compared with other firms in this quarter’s BOS, those that incorporated tariffs into their outlooks had significantly weaker outlooks. These firms account for nearly all of the decline in the balance of opinion on future sales growth. However, most firms had not incorporated tariffs into their outlooks at the time of the BOS interviews. Some firms said they expect that, even without tariffs, a period of prolonged uncertainty would lower their sales growth expectations.
Businesses are concerned that the costs of tariffs could impact their sales in several ways, including:
- greater difficulty competing in US markets
- lower consumer spending
- reduced demand from business customers directly affected by tariffs
