July in Review
Conflict in the Middle East fluctuated last month. After a fragile ceasefire in June, the U.S. and Iran resumed military hostilities in early July, and strikes continued through month’s end. At the same time, Saudi Arabia and the Houthis resumed fighting after several years of relative reprieve.
The latest phase of the conflict is once again centered on commercial shipping. Iran targeted vessels in the Strait of Hormuz and raised the possibility of charging transit fees, while the U.S. reinstated a naval blockade of Iranian ships. After resumption of some shipping traffic in early July, the Strait of Hormuz is almost completely shut again. The Iranian-backed Houthis also announced a blockade of Saudi ships transiting another key shipping chokepoint located at the southern entrance to the Red Sea, the Bab el-Mandeb Strait, which Saudi vessels used as an alternative to Hormuz.
The U.S. and Iran have also expanded their targets beyond military assets to include civilian transportation and infrastructure, and have launched strikes into other nations, including Jordan, Kuwait, Qatar, and Iraq. The Houthis struck Saudi oil infrastructure for the first time in years. With these developments, the risk of a wider war has slowly increased.
As expected, tariff announcements are becoming more frequent after a pause that lasted several months. Three new tariffs were announced this month, and another was implemented after being announced several months prior.
Recall that earlier this year, the U.S. Supreme Court invalidated some tariffs imposed in 2025. In response, the White House introduced a temporary global tariff while developing replacement measures. That temporary tariff expired in July and was replaced by a similar levy, with the new tariff relying on different legal backing than the precedent struck down by the court. Separate tariffs on Canada and Brazil were announced, alongside tariffs on global pharmaceuticals.
The Canada tariff carries a high 50% rate but applies to only a 5% of U.S. imports from Canada. The two nations are currently reviewing their USMCA trade agreement, and this tariff may be part of those negotiations. But if the tariff takes effect as planned and applies to USMCA goods, it would represent a new risk for North American supply chains. The Brazil tariff imposes a 25% rate on many products.
A tariff on generic pharmaceuticals is scheduled to take effect over the next several years, with rates increasing over time. The delayed implementation is intended to give manufacturers a runway to expand domestic production and reduce imports. Earlier this year, the administration announced a similar tariff on patented medications that took effect this month. However, companies can significantly reduce their exposure by expanding domestic production and can avoid it entirely by entering into drug-pricing agreements with the White House, and many firms have already done so.
Collectively, the spate of new tariffs raises questions about the future direction of trade policy. Effective tariff rates trended lower in early 2026 as country-specific measures were reduced and product exemptions were granted. If July’s activity represents a new escalation of tariff implementations, it could create renewed inflation and trade-related risks.
Turning to the economy, U.S. consumer inflation eased in June, driven primarily by a decline in gasoline prices. Though at 3.5%, inflation remains well above the 2.0% target. Goods inflation has also cooled from its earlier peak, largely following the expected pattern associated with tariffs, as tariffs create a one-time increase in prices. That said, new tariff announcements add uncertainty to the future path of inflation.
Even with a higher cost of living, consumer spending was resilient. Households continued to spend at a solid pace last month, though some of that growth reflects higher prices rather than increased consumption. Energy is a clear example, where households reduced usage but still spent more. A similar pattern is evident in discretionary areas like sit-down restaurants, where consumers appear to be pulling back on activity even as total expenditures rise.
Construction activity continues to stagnate after several years of rapid expansion. Residential construction has been largely stable, with multifamily projects providing support while single-family development remains under pressure. Non-residential construction has generally trended lower, although performance varies widely across subsectors. Data centers remain a standout source of growth as companies continue investing heavily in AI infrastructure, while power and energy projects are also benefiting from rising electricity demand tied to data centers.
The labor market was stable, with employers continuing to add jobs at a moderate but healthy pace. Hiring this year has been noticeably stronger than in 2025, led largely by healthcare, social assistance, and professional services. The unemployment rate edged lower, extending the gradual improvement seen since late last year, while wage growth has slowly normalized.
To contact our team, visit TheHartford.com/gic
The information, views, opinions, and recommendations provided in these materials is intended to be general and advisory in nature. The Hartford is not providing investment advice, tax advice, legal advice, business advice, or other professional advice. The Hartford does not guarantee or warrant the accuracy, completeness, or timeliness of, or otherwise endorse, the information, views, opinions, and recommendations provided in these materials. You should always seek the assistance of a professional for advice on investments, tax, business, the law, or other professional matters.
The Hartford Insurance Group, Inc., (NYSE: HIG) operates through its subsidiaries, including underwriting company Hartford Fire Insurance Company, under the brand name, The Hartford,® and is headquartered at One Hartford Plaza, Hartford, CT 06155. For additional details, please read The Hartford’s legal notice at https://www.thehartford.com.
