Focusing on small businesses, BofA’s internal client data shows deposit growth from manufacturers has also declined.
“It’s possible, right, that these [tariffs] could support momentum going forward and potentially reverse some of that slowdown, especially for certain sub sectors within the industry,” the report’s author, BofA economist Taylor Bowley, told Fortune. “But tariff costs and labor issues do exist.”
There are still obstacles to coming back stateside, though. In the BofA survey, 54% of the analysts said issues finding skilled workers would be a significant impediment for companies.
If firms struggle to fill positions, Bowley said, they are forced to figure out how to improve productivity without hiring people.
“And that’s where this conversation around automation and productivity comes in,” she said.
“A lot of them depend on a specific part—for example, to complete their manufacturing process—that simply isn’t made domestically,” Bowley said.
Therefore, for smaller manufacturers, tariff uncertainty makes planning capital expenditures especially difficult, even if their products become more competitive domestically. With profit margins and productivity lagging other industries in the U.S., passing price hikes on to consumers is the obvious response. However, if firms need to absorb some of the cost to keep customers, Bowley said, reducing inventories, operations, or headcount are other potential options.
“Reshoring in that aspect for smaller firms is kind of a double-edged sword,” she said.
Nonetheless, sales are expected to grow in the coming months, Bowley said. But businesses might start feeling the squeeze, she added, when inventories start running low in the second half of the year.