Episode summary
The Consumer Shock From Tariffs Isn't Over. When Will Prices Peak? | WSJ’s Take On the Week
The Journal
· · Hosts: Miriam Gottfried, Telis Demos · Guests: Frances Donald
Summary
Frances Donald argues that the U.S. economy is no longer best understood as a single cycle. The old K-shaped story of rich households pulling away from poorer ones is still true, she says, but since about 2023 the bigger change has been that different income groups are moving through different economic cycles at once. That is why consumer sentiment can look terrible while spending, GDP and retail sales stay resilient.
She says Walmart’s strength fits that framework: the typical U.S. consumer is under pressure, but real wages have still been rising about 1%, spending has held up, and some purchases may have been pulled forward ahead of tariffs or through buy now, pay later programs. She expects tariff-related price pressure to peak in the second quarter, with some relief toward year-end, but says the shock is not over and inflation is likely to stay stuck around 3%.
Donald also says demographics are reshaping the labor market. With more than 2 million retirements a year and over half of recent job growth in healthcare, the U.S. now needs workers more than jobs. In her view, AI is less a job thief than a possible offset to labor shortages, though she warns that youth unemployment bears close watching.
Key takeaways
- Donald says the economy has shifted from one broad cycle to multiple group-specific cycles, so average data can hide what households are actually experiencing.
- She expects tariff pass-through to peak in the second quarter, with the bulk of the price transfer visible then and some easing by year-end.
- Donald says inflation is likely to remain around 3%, driven by tight labor markets, higher goods prices from tariffs and shelter-related stickiness.
- She argues the U.S. economy increasingly needs workers, not jobs, because retirements are accelerating and healthcare is absorbing a large share of hiring.
- Donald says AI may become a labor-supply fix rather than a job killer, especially as the labor force shrinks, but youth unemployment should be watched closely.
Notable quotes
“we have another 3 to four months before we think tariff impact peaks”
“the rich are getting richer while the poor are getting poorer”
“So the reason that economists are so fascinating with this is because it's changed the way that we actually have to use economic data”
“We have over 2 million folks who are retiring every 12 months continuously”
“AI is going to help us offset a shortage of jobs”
How the episode opens
We have another 3 to four months before we think tariff impact peaks. So somewhere around the second quarter, you should see the bulk of that transfer come through and then in more of an alleviation towards year end. But that shock is not over yet.
Hey Miriam. — Hi Telus. — So I've got circled on my calendar for this upcoming week that Walmart is reporting earnings. Walmart the newly minted trillion dollar market cap company. Pretty exciting for a retailer. But here's the thing. How is Walmart hitting market cap records when all we talk about these days is the K-shaped consumer economy?
Right? And what that means is that the rich are getting richer while the poor are getting poorer. So why is Walmart booming? — We really wanted to put some more meat on the bones of this kind of K-shaped economy conversation because some of some things make intuitive sense about it, some things don't. So we are joined today by RBC chief economist Francis Donald. Francis, welcome.
Well, thank you for having me. — Why don't we start off by why don't you tell us your definition of the K-shaped economy because I think it means different things to different people. So, what does it mean to you and what is driving it?
So, Miam, you mentioned the rich are getting richer, the poor is getting poorer, and that is a standard sort of understanding of the K. And when you picture the K, you have that upper part that's rising and that lower part that's falling. Now, here's the bad news. That's actually always been true for several several decades.
That's what I thought.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tariffs
- consumer spending
- k-shaped economy
- inflation
- labor shortage and ai
Companies and tickers mentioned
- WMT
- RY
- Walmart
- Royal Bank of Canada
- Taco Bell
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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