Tariffs were again front and center in a week replete with economic data. The week began with news that the Trump administration will be imposing a 25% levy on imported steel and aluminum from all U.S. trading partners. Although financial markets were braced for news of additional tariffs, President Trump did not implement any new levies in the days that followed. However, he did direct federal agencies to investigate reciprocal tariffs, i.e., to study how to adjust tariff rates to match existing duties imposed by other nations.
In a press conference that followed the reciprocal tariff announcement, President Trump acknowledged that changes to trade policy could temporarily drive up prices. Upside inflation risks arrive amid concerns that the disinflationary process has come to an early end, with a hot reading on the Consumer Price Index (CPI) to start 2025 only amplifying worries. Both the headline and core CPI surprised to the high side during January, rising 0.5% and 0.4%, respectively. The warm print arrived with an important caveat. Warm inflation readings in the first month of the year have not been unusual since the pandemic, a trend likely owed to seasonal factors failing to capture early year price increases accurately after COVID distorted the typical pattern. That noted, the year-over-year change in January's headline CPI, which would theoretically account for lingering seasonal adjustment issues, posted the strongest rate since June 2024. Meanwhile, the core CPI, which excludes volatile food and energy prices, ticked up to 3.3%, keeping the index essentially unchanged since last summer.
A set of other inflation indicators released this week provided additional evidence that price pressures are still percolating. The headline and core Producer Price Index (PPI) rose 3.5% and 3.6%, respectively, on a year-over-year basis in January, both above consensus estimates. The increase in the PPI suggests that input prices for businesses are still climbing. What's more, the NFIB Small Business Optimism Index revealed that, even though businesses are more enthusiastic about the economy's prospects post-election, inflation is still a challenge. Although the components measuring current and future plans to raise prices fell slightly, both measures remain elevated above historical norms.
Elsewhere, several other indicators of economic activity wobbled to start 2025. Industrial production rose solidly in January; however, the gain was owed to a jump in utilities production, likely reflecting harsh winter weather during the month. The rise was enough to offset weakness in mining and manufacturing production, notably in motor vehicle production. Meantime, an unexpectedly sharp drop in retail sales suggests that consumers tightened their belts to start the year. Total retail sales declined 0.9% during January, a worse outcome than the small drop that was widely anticipated. We note that there were upward revisions to the rise in sales posted the previous month, which takes some sting out of January's plunge. That said, “control group” retail sales, which feeds into the personal consumption expenditures (PCE) line of GDP, registered an acute fall in January. The pullback in control group sales suggests consumer spending is starting the year off with slower momentum.
This Week's State Of The Economy - What Is Ahead? - 06 November 2020
Wells Fargo Economics & Financial Report / Nov 10, 2020
As of this writing, the outcome of the U.S. presidential election is undecided. Joe Biden, however, appears likely to become president based off of his growing lead in several key states.
This Week's State Of The Economy - What Is Ahead? - 17 January 2025
Wells Fargo Economics & Financial Report / Jan 20, 2025
The Consumer Price Index ended the year at 2.9% year-over-year, which is a minor improvement from its 3.1% rate in January 2024 and points to stalled progress on the road back to the Federal Reserve\'s 2% inflation target.
This Week's State Of The Economy - What Is Ahead? - 14 October 2022
Wells Fargo Economics & Financial Report / Oct 18, 2022
Highly anticipated Consumer Price Index report surprised to the upside. Headline CPI rose 0.4% in September, and core CPI increased 0.6%.
This Week's State Of The Economy - What Is Ahead? - 25 October 2019
Wells Fargo Economics & Financial Report / Oct 26, 2019
Sales of existing homes fell 2.2% to a 5.38 million-unit pace in September, but sales and prices were still up enough in the quarter that they will add solidly to Q3 GDP growth.
This Week's State Of The Economy - What Is Ahead? - 10 September 2021
Wells Fargo Economics & Financial Report / Sep 13, 2021
Data from the opening weekend of College Football indicates that we will have to endure another season of Nick Saban deification.
This Week's State Of The Economy - What Is Ahead? - 27 January 2023
Wells Fargo Economics & Financial Report / Jan 28, 2023
Real GDP expanded at a 2.9% annualized pace in Q4. While beating expectations, the underlying details were not as encouraging. Moreover, the weakening monthly indicator performances to end the year suggest the decelerating trend will continue in Q1.
This Week's State Of The Economy - What Is Ahead? - 23 December 2020
Wells Fargo Economics & Financial Report / Dec 26, 2020
Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.
This Week's State Of The Economy - What Is Ahead? - 15 December 2023
Wells Fargo Economics & Financial Report / Dec 21, 2023
core CPI remained elevated in November at a 4.0% annual rate, a string of slower monthly prints suggests that disinflation has more room to run.
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.
This Week's State Of The Economy - What Is Ahead? - 17 May 2024
Wells Fargo Economics & Financial Report / May 23, 2024
The Producer Price Index (PPI) was a bit firm in April, rising 0.5% amid higher services prices, though it did come with slight downward revisions to prior month\'s data.
