The economy this week: New jobs are low, tariffs are up and interest rates hold

This week's economic review highlights a US economy characterized by low new job creation, rising tariffs, and steady interest rates, as discussed with Mary Lovely of the Peterson Institute for International Economics. This assessment points to a potentially softening labor market and persistent trade tensions, particularly concerning Trump administration trade deals, while monetary policy maintains a consistent course.

Analysis

The U.S. economy is exhibiting signs of strain, characterized by a confluence of negative indicators. A key concern is the low level of new job creation, which points to a potentially softening labor market and a headwind for domestic consumption. Concurrently, an increase in tariffs, stemming from the Trump administration's trade deals, introduces significant uncertainty and friction into global supply chains, posing a risk to corporate profitability and economic growth. Amid these challenges, monetary policy remains on a consistent course with interest rates holding steady. This static policy stance suggests a central bank in a 'wait-and-see' mode, observing the impact of trade tensions and labor market weakness before signaling its next move. The overall environment, accurately reflected by a moderately negative sentiment score, is one of heightened risk where persistent trade tensions and a cooling jobs market are the dominant macro themes.

Key Decisions for Investors

• Given the combination of a softening labor market and escalating trade tensions, investors should assess their exposure to cyclical sectors that are highly dependent on economic growth and international trade.
• Monitor upcoming labor market reports and any rhetoric or policy changes related to tariffs, as these two factors are the primary drivers of the current pessimistic outlook.
• While interest rates are stable, be attentive to any shifts in central bank communication, as further economic weakening could precipitate a dovish policy pivot, impacting fixed-income and rate-sensitive equity valuations.