How stock market turmoil may cause Long Islanders to dial back on spending

A late rout drove U.S. stocks lower Tuesday, reversing earlier large gains, as Long Island experts said the market's extreme swings over the past several days would likely cause consumers and businesses to dial back spending, hurting the region's economy. 

On Tuesday, the Dow Jones Industrial Average dropped 0.8%, or 320 points, after jumping up about 1,400 points in early trading. The Dow closed at 37,645.59.

Meanwhile the S&P 500 fell 1.6% to 4,982.77 and the tech-heavy Nasdaq composite sank 2.1% to 15,267.91. Earlier in the day, the S&P 500 and the Nasdaq had risen more than 4% as there was hope the Trump administration might advance trade negotiations. 

But President Donald Trump later escalated the United States’ trade war with China, announcing a plan to raise tariffs on Chinese goods to 104% on Wednesday in response to earlier retaliatory tariffs imposed by China. 

The S&P 500 has dropped 12.1% since Trump announced wide-ranging tariffs on goods imported from nearly all U.S. trade partners last Wednesday and has fallen 18.9% since its peak in February. 

The White House said last week its tariff strategy is designed to reduce its trade deficits with foreign countries, boost U.S. manufacturing and protect American workers. 

But the extreme market volatility of the past week is likely to cause consumers to spend less, creating a drag on the local economy, said Steven Kent, an economics professor at Molloy University. Economists describe this as "the wealth effect."

"The decline in the stock market makes people feel less wealthy, so they don’t want to spend as much," said Kent, who is also chief economist for the Long Island Association. 

While there are many factors that influence stock market movements, one driver this week has been investors’ expectations about the effect of tariffs on corporate earnings, Kent said.

"The concern is that the tariffs will increase the costs for many of the largest companies, and as that happens they will either have to raise their prices or they will have to eat the higher expense [and] that would lead to lower profits," Kent said.

Even before the latest market downturn, consumers’ outlooks were growing grimmer. Consumer confidence in March fell to its lowest level since January 2021, and consumers’ short-term outlooks for income, business and labor market conditions sunk to their lowest levels in 12 years, The Conference Board, a business group which publishes the monthly survey, announced March 25.

Unless more countries begin to compromise on trade policies, or the Trump administration eases its stance, an economic slowdown appears imminent, said Anoop Rai, a finance professor at Hofstra University's Frank G. Zarb School of Business.

"There is going to be a recession one way or the other because of tariffs," Rai said.

He believes the higher prices tied to tariffs and volatile markets could affect consumers' willingness to make major purchases, such as cars and furniture. 

Rai said he believed several factors could help lessen the impact of a potential recession, mitigating potential job losses. First, he expressed confidence that Federal Reserve Chair Jerome Powell would appropriately respond to risks of job losses by cutting interest rates, which could stabilize the economy.

Long Island also has an advantage over other regions, he said, because it isn't dominated by one industry. No single industry makes up more than 25% of the Island's jobs, according to the state Department of Labor.

Some of Long Island’s largest sectors include health care, government, private education and retail.

"We are well diversified on Long Island compared to some place like the agricultural areas of the Midwest," Rai said. "Long Island will be affected but it won’t be as bad as a full sector going down in certain parts of the country."

Small businesses’ outlook dims too

Small business owners are also increasingly jittery over the economy. Small business confidence fell in March, marking the third straight month of declines, according to the latest data released Tuesday by the National Federation of Independent Businesses.

"Long Islanders that are concerned about the health of their 401(k) [plans], and watching online or on their phones to see the value dwindling by the minute, they're going to spend less," Matt Cohen, CEO of the Long Island Association, the area's leading business group, said. "Businesses are going to suffer because people aren’t as quick to spend."

The uncertainty posed by tariffs and wild swings in the market is greater for small businesses, Cohen said. He noted businesses with 10 employees or fewer represent more than 80% of all Long Island companies.

"We are such a small business-dominated economy here," he said. "It is much more difficult for a small business to be able to withstand the cost pressures and the financial pressures of what the tariffs will bring."

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.