The government will release several economic reports this week, covering jobs, inflation, consumer spending, and economic growth. And next week, we’re going to get another piece of data that affects all of the above: labor productivity for the second quarter.

Labor productivity measures how much stuff we make and do compared to how much time we spend making and doing it. Strong productivity growth helps businesses make more profits, which they can use to invest in equipment, hiring, raises, or price reductions — all of which can boost economic growth in the long run.

But right now, plenty of businesses across the country are dealing with a problem that’s whittling away at many of those economic benefits: the Trump administration’s tariffs.

Wolf Tooth Components is a manufacturer in Minnesota that makes bike parts, mostly out of aluminum. Co-owner Brendan Moore said over the last several years, the company’s been trying to boost output: It bought more aluminum milling machines, invested in more automation, and even moved workstations closer together.

“If there’s 30 or 40 steps from when a thing is a piece of aluminum to when we ship it, every one of those we’re scrutinizing to see where we can take a second out, or two seconds out, or combine steps,” Moore said.

Moore said the goal is to make and sell more bike parts, rake in more profit, and use that money to develop new products, hire more workers, and expand.

But then came the Trump administration's tariffs. Moore said his aluminum costs spiked, along with the cost of the other imports he relies on.

“Certain components that aren’t made in the U.S. anymore. Say, for example, a small ball bearing,” Moore said.

As a result, Moore said that extra revenue he’s banked from all of those productivity improvements is being soaked up by the cost of tariffs.

“There’s less to re-invest, if you will, because (we’re) using some of that money to cover the extra costs we have right now,” Moore said.

Moore said he’s holding off on some new hires he wanted to make. The company also shelved plans to buy another building and expand operations.

“We’re investing in the things we need here and now, today, and maybe in the next coming months, but we’re not buying a piece of equipment that we think we’re going to need, or we’re pretty sure we’re going to need, in six months right now,” Moore said.

One upside of the productivity improvements his company has made is that he can afford not to raise prices, and absorb the cost of the tariffs.

Nicole Cervi, an economist with Wells Fargo, said productivity growth can play a big role in keeping inflation in check.

“This has been very important, actually since the pandemic, in helping the rate of inflation return back towards 2%, or towards the level that the Federal Reserve would feel comfortable,” Cervi said.

But on the other hand, the added cost of tariffs eats away at the other benefits of a more productive economy, said George Pearkes, macro strategist with Bespoke Investment Group.

“Instead of hiring more workers, or paying your existing workers higher wages, or investing for the future, you’re basically taking that productivity improvement that you’ve made, and paying it on the new government tax,” Pearkes said.

Pearkes said that’s a big missed opportunity.

“Productivity is the key to unlocking higher wages, higher spending, higher income, higher production, higher standards of living,” Pearkes said. “It’s the fundamental building block of all of this stuff.”

And if businesses keep holding off on using productivity gains to make big investments, Nicole Cervi at Wells Fargo said that could affect the economy’s potential to grow.

“You could have a scarring effect, where we just see that there’s a retrenchment away from productivity growth, or interest in research and development, and that actually slows overall economic output kind of in the medium term,” she said.

Back in Minnesota, Brendan Moore at Wolf Tooth Components said there is a silver lining: His business is pretty efficient at churning out bike parts.

Right now he said he’s thinking about other ways he can boost output, once the economy becomes more certain.

“This really forces you to think about it,” Moore said. “And it’s beyond just manufacturing — it’s the marketing, the sales, the customer service. All those things, I’d say, have an enhanced focus.”

Moore said if the tariff situation ever calms down, all of those productivity gains he’s made will let him get back to growing the company.