The week started with financial markets selling off amid concern about the impending implementation of new tariffs, but by the end of Monday, concessions from Mexico and Canada regarding border protection put tariffs on those countries on hold for 30 days. The economic news throughout the week left room for interpretation, but financial markets settled on a favorable narrative. Our equity strategy team couched the nearly 2.0% swoon on the week’s first day of trading as “just another manic Monday,” while noting that for the week as a whole, at least as of this writing, broad equity measures were up.
Prospects for a trade war are transitioning from a looming threat to looming policy. While most of the latest proposal is now on ice, our model simulations demonstrate how the latest round of proposed tariffs could introduce a modest stagflationary shock by negatively affeacting growth and temporarily boosting inflation. In terms of actual data, we learned this week that the U.S. trade deficit widened by a record amount in December, leaving the deficit 17% larger in 2024 than in 2023. While the sharp widening is likely temporary, tariff policy remains in focus and is set to disrupt trade flows over the course of the year. It's not just actual policy but the prospect of such policies that can also dictate economic behavior.
While a near miss regarding a trade war started the week, the headline economic indicator came at the end of the week with Friday's jobs report. When the headline number hit the wire, it felt like a miss with the total nonfarm payroll number coming in at just 143K, well short of the consensus expectation of 175K. But get past the headline whiff and underlying details were generally more positive. Last month’s job growth of 256K got bumped up in the revision to a gain of 307K net new jobs. That makes December the biggest increase in payrolls in nearly two years. The jobless rate also fell to 4.0%. To the extent that there was a genuinely disappointing development, that came not in the routine revisions to recent data, but rather in the annual revisions to the establishment survey's employment figures, which revised down the level of payroll employment in March 2024 by 589K, or -0.4%. The annual revisions also sullied the narrative that the job market was resilient last summer. The three-month moving average of payroll growth was just 82K in the June-August period, sharply lower than the 237K average registered over the most recent three months.
In addition to the mixed developments with respect to the labor market, the rest of the week’s indicators also offered at times conflicting takes on the health of various facets of the economy. Take the ISM surveys, for example. Buoyed by gains across various sub-components, the ISM Manufacturing Index broke above 50 for the first time since 2022. Prices, production, employment and new orders all rose in a long-awaited rebound for a sector that has felt the pain of higher interest rates more acutely than others. The gloomy backdrop that now appears to be brightening has stood in contrast to the counterpart survey for the services sector. In what feels like some odd sort of give and take, the services ISM fell at the start of the year. While the index is still consistent with a broad expansion in activity that remains supportive of hiring, a pullback in new orders and only a modest drop in prices paid show some lost momentum potentially stemming from apprehension around tariffs.
This Week's State Of The Economy - What Is Ahead? - 20 October 2023
Wells Fargo Economics & Financial Report / Oct 27, 2023
Treasury yields surged this week due to strong economic activity, impacting expectations for longer-term rates. New home sales led to a rise in single-family permits, but spiking mortgage rates are testing builder affordability strategies.
This Week's State Of The Economy - What Is Ahead? - 07 April 2023
Wells Fargo Economics & Financial Report / Apr 10, 2023
Employers added jobs at the slowest pace since 2020 in March, job openings fell and an upward trend in initial jobless claims has emerged.
This Week's State Of The Economy - What Is Ahead? - 23 April 2021
Wells Fargo Economics & Financial Report / Apr 26, 2021
This week\'s lighter economic calendar allowed forecasters more time to assess the implications from the prior week\'s blowout retail sales report.
This Week's State Of The Economy - What Is Ahead? - 20 December 2024
Wells Fargo Economics & Financial Report / Dec 23, 2024
The strength in demand has hindered progress on disinflation, exemplified by the PCE deflator inching up a tenth to 2.4% year-over-year in November.
This Week's State Of The Economy - What Is Ahead? - 05 August 2022
Wells Fargo Economics & Financial Report / Aug 08, 2022
The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.
This Week's State Of The Economy - What Is Ahead? - 06 August 2021
Wells Fargo Economics & Financial Report / Aug 16, 2021
Back to the economy, issues with supply constraints remains a broken-record reference, but data this week highlighted the economy\'s resilience in spite of those continuing problems.
This Week's State Of The Economy - What Is Ahead? - 06 December 2024
Wells Fargo Economics & Financial Report / Dec 09, 2024
Incoming economic data continue to illuminate pockets of stress in the U.S. economy. The unwinding of strikes and hurricane effects lifted nonfarm payrolls by 227K in November; however, job gains remain highly concentrated by industry.
This Week's State Of The Economy - What Is Ahead? - 15 January 2021
Wells Fargo Economics & Financial Report / Jan 18, 2021
Retail sales fell 0.7% in December, the third straight monthly decline. Sales are still up 2.9% over the year, however.
This Week's State Of The Economy - What Is Ahead? - 01 December 2023
Wells Fargo Economics & Financial Report / Dec 05, 2023
U.S. data released this week indicates the economic expansion remains alive even as inflation continues to slow. The year-ago rates of headline and core PCE inflation were the lowest since March 2021 and April 2021, respectively.
This Week's State Of The Economy - What Is Ahead? - 14 June 2024
Wells Fargo Economics & Financial Report / Jun 20, 2024
On Wednesday, the May CPI data showed that consumer prices were unchanged in the month, the first flat reading for the CPI since July 2022.
