by Jason Norris
Director
Equity Research and Portfolio Management
Over the last week, the tariff rhetoric hit a heightened level with the threat of 25% tariffs on products coming in from Mexico and Canada, as well as 10% on China. Shortly thereafter, we had a stay, delaying the Canadian and Mexican tariffs for a month. However, the continuous commentary out of Washington D.C. regarding tariffs has put consumers and the markets on edge. We’ve been telling our clients that the over-impact of tariffs on the economy as a whole will not be as bad as feared. However, consumers are becoming very weary. The University of Michigan consumer sentiment index was released this morning and showed a meaningful decline, primarily driven by fears of higher prices due to tariffs.
In recent years, we’ve noted that while rising prices may show small impact on the broader economy, they do greatly impact the American consumer. To illustrate this, we have assembled a “breakfast index” using Federal Reserve data which tracks the average price of coffee, bacon, orange juice, eggs and bread. As you can see, these items have shown dramatic price increases.
Thus, with tariffs potentially impacting day-to-day items for the price-sensitive consumer, it seems there is an increase in negative sentiment surrounding the topic.
Come Together
Another healthy jobs report was released this morning, showing the unemployment rate falling to 4.0% from 4.1% and gains of 143k of new jobs. Data from earlier this week also show that the tightness in the labor market over the last few years has been wrung out. The JOLTS report, which reports job openings, showed that openings continue to come down to normal levels. In 2021, the labor market was very tight, with twice as many job openings as people looking. Over the last couple of months, that number has come down to par.
Takeaways for the Week
Tariff “noise” is going to be a regular occurrence, thus adding uncertainty to markets and consumer expectations
The U.S. labor market continues to be in a “Goldilocks” environment
U.S. stocks were flat this week as corporate earnings reports were relatively strong, while macro uncertainty was a headwind