U.S. economy weathers storms and strikes but faces rising uncertainly about tariffs, Ukraine, and DOGE.
The U.S. economy has stayed the course through extreme weather, including fall hurricanes, winter storms, and recent wildfires. U.S. payrolls increased by 151,000 in February, modestly below consensus expectations of 160,000. After revisions from the prior two months, the six-month average is up to 190,700, above the pre-COVID three-year monthly average of 177,000. Other labor market indicators were softer, with the unemployment rate ticking up, labor force participation slipping, hours worked staying near their pandemic lows, and wage growth cooling.
While the steady economy can handle noise from the labor market, the policy changes emanating from Washington may pose a greater challenge. The everchanging tariff landscape adds uncertainty, clouds decision-making, and ultimately stalls actions that businesses need to take to boost business profits and drive economic growth. The U.S.’s assertive tariff stance could lead to ripple effects and unintended consequences. For instance, more than 40% of revenue for S&P 500 companies comes from outside the United States as big-name U.S. brands sell their products and services globally. Blowback from aggressive tariffs and trade policies could negatively impact the international sales of U.S. companies. Recent stock market volatility likely reflects those concerns.
The Federal Reserve (Fed) has maintained its “wait and see” approach, which we expect to continue after the March meeting. In addition to the tariff uncertainty, the Fed must watch inflation, which has risen in recent months, and consumer sentiment which has hit a seven-month low. Adding to this is the potential impact of DOGE cuts, which have not yet significantly affected labor metrics. We’re currently penciling in roughly 200,000 federal job cuts in 2025, leading to an additional headwind for the Fed to consider in the rate setting process.
As we progress through March, the economy is chugging along with steady growth powered by a resilient job market. Uncertainties from tariffs and trade deals to Ukraine and DOGE persist, clouding decision-making for businesses that desperately want these issues resolved. The Fed, along with the broader market, will be closely watching how these policies unfold to inform their next steps.
