Recently we published an article on some key issues that will impact small businesses in 2025. In that piece, Ben Johnston, Chief Operating Officer of Kapitus — a company that specializes in small business finance — shared insights and takeaways on how inflation, supply chain issues, potential tariffs and the changing political environment will impact small businesses this year.
In this second installment, Johnston discusses how the observations he shared in the original article will impact various industries. We think you’ll find his thoughts and predictions interesting and useful.
Food for Thought — The Restaurant Industry
“The restaurant industry grew steadily in 2024, as strong employment trends and positive economic growth fueled consumer spending,” says Johnston. “We expect this trend to continue in 2025 as low unemployment provides consumers sufficient discretionary income to afford eating out on a regular basis.
“However, the currently tight labor market could be exacerbated by a crackdown on the hiring of undocumented labor. It is estimated that 10% of all restaurant employees are undocumented as are at least 25% of all agriculture employees. A significant loss of undocumented labor could force both the cost of labor and food for restaurants considerably higher. Costs that would need to be passed on to consumers.”
The Full Experience — Hospitality and Travel
“The hospitality industry, like the restaurant industry, grew in 2024 as consumers increased spending on travel and experiences while spending less on large-ticket purchases such as home and auto,” Johnston says. “We expect hospitality and travel to continue to grow at the pace of the overall economy in 2025. We expect hotels, conference centers and the airlines to benefit from continued growth in business travel, as businesses emphasize in-person gatherings among a now decentralized workforce.
“Resorts, cruises and theme parks should also benefit from continued consumer demand as long as unemployment remains low and consumer spending strong. However, given that an estimated 9% of the hospitality industry is undocumented, a change in immigration policy could have an outsized impact on the industry’s ability to fulfill customer demand.”
Shopping Spree? — Retail
Retail sales grew steadily in 2024 as the American consumer benefitted from strong employment and wage growth,” says Johnston.” Discretionary durable goods such as home furnishings and jewelry improved, while recreational goods, clothing and footwear also saw an increase in spending.
“Without the threat of tariffs, we would expect retail sales to continue to grow in 2025, assuming employment remains strong. However, no industry is likely to be hit harder by an increase in import duties than the retail sector, as a high percentage of retail goods are imported. In total, approximately 11% of all consumer spending goes to purchase imported goods, but the percentage retail sales made up of imported goods is much higher. In response to the threat of increased tariffs, many retailers are trying to pull purchases forward, hoping to import as much as possible before the inauguration. Unfortunately for them, this is only a temporary solution, and we expect retail to be one of the hardest hit industries should additional tariffs be implemented.”
Building Blocks — Construction and Home Improvement
“Despite moderate rate cuts in 2024, mortgage rates remained high throughout the year, further slowing new housing starts and existing home sales,” Johnston says. “As a result, sales of home furnishings, home improvement supplies, and demand for residential construction services remained relatively flat.
“The current shortage of affordable housing in the U.S. should be a catalyst for growth in 2025. However, we are concerned that interest rates will remain high throughout the year as the Fed is forced to scale back anticipated rate cuts due to inflation. We are also concerned that additional tariffs will raise the cost of building materials significantly — especially tariffs on Canada (lumber), Mexico (appliances) and China (iron and steel).
“In addition, an aggressive move to remove undocumented labor from the country could make an already tight labor market even tighter. It is estimated that approximately 15% of construction workers in the United States are undocumented. A significant loss of workers would limit the ability to take on new jobs, while driving up the overall cost of labor, creating a difficult environment for contractors and homeowners alike.”
On the Road — Automotive
“The auto industry saw a decline in sales in 2024 across both new and used vehicles as high interest rates and a hangover from the purchasing binge of the post-pandemic consumption era reduced demand,” Johnston says. “While this was troubling for dealerships and manufacturers, a slowdown in car sales can actually be good news for automotive repair shops as older cars need more maintenance. We expect 2025 to be another challenging year for dealers, manufacturers and consumers alike as new tariffs raise the costs of purchasing new vehicles. However, we continue to be bullish on the auto repair industry which will benefit from an aging vehicle fleet.”