The latest government data paints a mixed economic picture, and Wells Fargo economist Nicole Cervi feels that many business owners are preparing for a period of “managed uncertainty.” It’s not crisis-level fear. It’s not optimism either. Instead, businesses are adapting in practical, incremental ways—especially around pricing, labor, and margins.

For small business owners, these insights matter. You’re on the front lines, feeling cost pressures in real time and responding faster than large corporations ever could. What Cervi highlights is not panic—but strategy.

Thanks to Luminary for hosting today’s powerful discussion and insights.

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Key Takeaways

• Many businesses are staggering price increases instead of raising prices all at once.
• Tariffs are rising, and both consumers and businesses are absorbing the costs.
• Inflation is higher than normal but growing at a slower pace than feared, especially in services.
• Companies expect a margin squeeze ahead, but profits remain stronger than a decade ago.
• Labor costs are being managed quietly through natural attrition instead of layoffs.

Staggered Price Increases: The Quiet Survival Strategy

Cervi notes that tariff revenue has doubled year over year, and even though the government collects that revenue, the real payers are businesses and consumers. That cost trickles through supply chains, eventually forcing companies to look at pricing.

But instead of big, painful jumps, many are choosing surgical price increases—small increments spread across months.

This approach has become a preferred strategy for uncertainty-heavy conditions:

• Customers feel less sticker shock
• Businesses protect margins without signaling distress
• Cash flow stabilizes across quarters

For small business owners, this is a practical takeaway: If your costs are rising, gradual adjustments may protect both revenue and customer loyalty.

Inflation: Higher, But Not Crushing

According to the data, inflation has risen—but not to the levels many feared. Services, in particular, are showing disinflationary pressure, helping to moderate overall price growth.

Still, inflation doesn’t “land” evenly. Cervi emphasizes a K-shaped recovery, where higher-income households continue spending while lower- and middle-income families feel the squeeze. That matters for entrepreneurs whose customer base relies on discretionary income.

The Federal Reserve’s 2% target remains in focus because, as Cervi notes, a 20–30% overall price growth rate over several years is historically normal. But that doesn’t help households who see prices climbing faster than their paychecks.

For business owners, this means:

• Expect spending differences across customer segments
• Build offers for both value-seekers and premium buyers
• Communicate price changes clearly so customers understand the “why”

Preparing for a Margin Squeeze

Cervi’s forecast is “downbeat”—not catastrophic, but cautious. Many companies expect margin compression over the next few quarters.

Still, she reminds us:
Profit margins today are higher than they were 10 years ago, even with recent volatility.

Businesses are responding in predictable, steady ways:

• Holding off on aggressive price hikes
• Trimming nonessential expenses
• Reworking labor costs quietly through natural attrition
• Adjusting product mixes to preserve margin

For entrepreneurs, margin protection may mean re-evaluating:

• Supplier contracts
• Software expenses
• Delivery and logistics costs
• Customer acquisition channels

A downturn forces clarity. It separates essentials from “nice-to-haves.”

Labor Costs: Letting the Workforce Adjust Itself

Rather than cutting staff, many businesses are using natural attrition—allowing roles to remain unfilled when employees leave. This avoids the morale hit of layoffs while slowly reducing labor costs.

Small business owners can take note:

• Reassess job descriptions
• Automate where practical
• Prioritize roles tied directly to revenue

In an AI-accelerating economy, lean teams are becoming the norm.

Why This Matters for Entrepreneurs

Economic uncertainty doesn’t need to derail your plans. What Cervi highlights is a roadmap of small, controlled adjustments rather than dramatic shifts. Businesses are not panicking; they’re recalibrating.

For small business owners, the lesson is clear:

Adapt gradually. Monitor closely. Communicate transparently.
Success in this phase of the economy won’t come from bold leaps—it will come from smart, steady steps.