Lots of noise to contend with

Trend watch

International travel appears to be collateral damage from the ongoing tariff troubles between the U.S. and our neighbors to the north and south. Flight bookings between Canada and the U.S. are down by over 70% in every month through the end of September, according to air travel analytics firm OAG. Similarly, air arrivals to the U.S. from Mexico dropped 11.2% in February. It remains to be seen whether this pattern persists.

There was a 1.5% decline of air passenger counts through TSA checkpoints in the past week, dipping below the 18 million reached in the prior week. As we noted last week, the push above 18M was well ahead of 2024 with a spring break peak of 17.8M and that the U.S. didn’t surpass 18M passengers until late May.

However, on slide 7, we highlight that this year’s spring break travel is more spread out over March and April compared to 2024 due to the later spring religious holidays (Easter and Passover, though Ramadan is roughly a week earlier this year). 

Our take

We maintain our view that – despite very weak sentiment readings – the economy is hanging in there. That’s largely been evident in the recent economic data, including new home sales (slide 9) and durable goods orders (slide 11).

However, there have been pockets of odd trends within some data. For instance, a competitor’s credit card data showed that spending for transactions more than 500 miles from their home were down more than 5% in three states – Nevada, Texas, and New York – on a year-over-year basis through the first 12 weeks of 2025. Perhaps the weakness was related to the harsh weather experienced during January and February, though spending was up elsewhere. That tracks with some of the odd travel data generally, but, again, much of the overall data has remained positive.

Looking ahead, though, we are concerned about the recently announced auto tariffs. Among our concerns are a raft of unintended consequences, particularly foreign buyers shunning all American made goods and services, not simply autos. We’ve already seen some evidence of this, including the aforementioned drop in flight bookings between Canada and the U.S.

There will most certainly be retaliatory tariffs; Europe and Canada have already announced tariff increases, while Mexico promised to do so but has yet to reveal them. China added 15% tariffs on U.S.-made chicken, wheat, corn, and cotton, and 10% on soybeans, pork, and beef. China also announced a halt on liquefied natural gas imports (LNG) from U.S. In 2024, China imported $2.4 billion worth of American LNG. And others will likely follow.

And all of these were before the White House’s so-called Liberation Day on April 2^nd when it plans to release reciprocal tariffs. Thus, this new tranche does little to clarify the issue of tariffs. On the contrary, it has injected uncertainty into supply chains and pricing for many companies – large and small – across North America and globally.

This uncertainty casts a long shadow over the economy, clouding decision making for businesses. Indeed, based on our conversations, businesses desperately want these trade issues to be resolved quickly. To wit, the most frequent sentiment has been, “even if tariffs are increasing – just tell us, but don’t hopscotch from one day to the next,” which would allow them to adjust and move forward.

Accordingly, many businesses are taking a ‘wait & see’ approach, which seems prudent. However, wait & see isn’t pro-growth either for the economy or for business profits. At the very least, it delays action that some businesses would have taken, while others may eventually choose to cancel plans all together due to the uncertainty. Furthermore, the longer this uncertainty drags on, the more impact it will have on the economy.

Bottom line

The U.S. economy remains resilient, and we believe solid growth will endure; however, it’s in a holding pattern awaiting resolution on the tariffs. Additionally, uncertainty regarding the impacts of policy shifts by the new presidential administration and Congress remain a further headwind for the economy in the near term. That has contributed to the recent bouts of volatility in financial markets, which we expect will continue for the foreseeable future.