The labor market appears to be holding up amid an onslaught of tariff decisions and rescissions. The U.S. economy added 151K jobs in February, only modestly below economist expectations of 160K. Federal government payrolls (excluding postal workers) shrank by 6.7K following DOGE efforts to reduce the size of the Federal workforce. Elsewhere, job gains were sturdy in manufacturing, transportation & warehousing and health care & social assistance. Yet the household survey revealed tentative signs of labor market softness. The labor force shrank by 385K in February, knocking the participation rate down by 20 bps to 59.9%. The unemployment rate also rose one tenth of a percent to 4.1%. More concerning, the U-6 underemployment rate jumped half a percent to 8.0%, which could be a harbinger for weaker labor force participation in the months ahead. This metric is a broader measure of unemployment that includes individuals working part-time for economic reasons and those who currently want a job but are discouraged from job-seeking.
Putting aside the jobs market, recent economic developments reflect heightened uncertainty around trade policy. Markets roiled when President Trump invoked the International Emergency Economic Powers Act (IEEPA) on Tuesday to impose 25% tariffs on most goods from Canada and Mexico. He used the same authority to raise tariffs on China from 10% to 20%. Unsurprisingly, each of these actions was met with retaliation. But the roller coaster did not end there. The president went on to temporarily exempt auto imports from Canada and Mexico and later extended the exemptions to cover all imports traded under the U.S.-Mexico-Canada Trade Agreement (USMCA). These exemptions are slated to end on April 2, the same day that reciprocal tariffs are scheduled to go into effect.
Assuming the temporary exemptions are indeed temporary, we estimate that President Trump’s trade actions to date cover 44% of U.S. imports. This figure may edge higher or lower in the coming months depending on new developments. But even without full clarity, tariff anticipation is already making its mark on economic data. The trade deficit in January widened to its largest point on record going back to 1992 as firms scrambled to get ahead of new levies. A 10% surge in imports swamped a respectable 1.2% gain in exports, resulting in a trade deficit of $131.4B. Stockpiling was most evident in a 34% pop in imports of industrial supplies, however consumer and capital goods also registered solid gains.
Every district surveyed in the Federal Reserve’s February Beige Book made some mention of higher costs or supply risks associated with tariffs. Manufacturers, retailers, farmers, transportation firms and builders all expressed trepidation. February’s ISM surveys were also riddled with tariff mentions. The manufacturing sector technically registered expansion, but just barely so at 50.3. New orders plunged 6.5 points, inventories remained in contraction and employment slipped 2.7 points. Furthermore, the tariffs already appear to be putting upward pressure on prices. The manufacturing prices paid component rocketed to its highest reading since June 2022, as one producer noted, “the incoming tariffs are causing our products to increase in price.”
The divide between the manufacturing and services sectors continues to grow. Remember that overall consumer spending retreated in January, driven entirely by a pullback in durable and nondurable goods. Consumer spending on services actually rose for the 36th consecutive month. Unwavering consumer demand has supported an ongoing expansion in the ISM Services Index, which ticked up to 53.5 in February. That said, service providers are not wholly insulated from tariffs. The prices paid component rose 2.2 points in February as representatives from 16 out of 18 services sector industries reported higher input costs.
This Week's State Of The Economy - What Is Ahead? - 03 November 2023
Wells Fargo Economics & Financial Report / Nov 08, 2023
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.
July 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Jul 30, 2020
The recent surge in COVID-19 cases indicates that elected officials re-opened the economy too soon, that too many Americans are flaunting social distancing guidelines, and that the virus is likely to be around longer than we’d hoped.
This Week's State Of The Economy - What Is Ahead? - 01 March 2024
Wells Fargo Economics & Financial Report / Mar 05, 2024
Economic data were downbeat this week, as downward revisions took some of the shine out of the marquee headline numbers. Despite the somewhat weak start to Q1, economic growth continues to trek along.
This Week's State Of The Economy - What Is Ahead? - 12 August 2022
Wells Fargo Economics & Financial Report / Aug 13, 2022
The FOMC has made it clear that it needs to see inflation slowing on a sustained basis before pivoting from its current stance. The data seems to be going in multiple directions all at once.
This Week's State Of The Economy - What Is Ahead? - 09 October 2020
Wells Fargo Economics & Financial Report / Oct 12, 2020
Weekly first time unemployment claims highlighted an extraordinarily slow week for economic news. Jobless claims fell slightly but continuing claims fell by one million.
This Week's State Of The Economy - What Is Ahead? - 09 April 2020
Wells Fargo Economics & Financial Report / Apr 10, 2020
The Federal Reserve announced a series of measures this morning that are intended to assist households, businesses and state & local governments as they cope with the economic fallout of the COVID-19 outbreak.
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? - 31 January 2020
Wells Fargo Economics & Financial Report / Feb 01, 2020
Mexico’s economy has slowed notably over the last year, with the economy contracting again in Q4, indicating a full-year contraction for 2019.
This Week's State Of The Economy - What Is Ahead? - 04 September 2020
Wells Fargo Economics & Financial Report / Aug 29, 2020
Employers added jobs for the fourth consecutive month in August, bringing the total number of jobs recovered from the virus-related low to 10.5 million.
This Week's State Of The Economy - What Is Ahead? - 02 September 2022
Wells Fargo Economics & Financial Report / Sep 05, 2022
More job seekers also lifted the participation rate to 62.4% and thus easing some tightness in the job market even as payrolls expanded.
