Often, macro is quite boring for a long time — and then it gets really exciting all at once.
It’s been a couple of weeks since we felt that excitement as it was clear to see that we were moving into a new regime.
Unpack all that is going on.
The fear of tariffs has led to a substantial frontrunning of imports, leading to a cratering trade deficit — the exact opposite of what Trump is trying to achieve.
The ISM Manufacturing New Orders Index has allowed us to monitor this frontrunning of tariffs.
In the graph, you can see that order volumes increased until tariffs were implemented. In this week’s report, order volumes have fallen off a cliff.
As we discussed earlier, the manufacturing upswing was either a sign of a beginning new business cycle, or it could have been a false alarm due to tariff prioritization. The tariffs are now clear.
The Atlanta Fed’s GDPNow Nowcast predicts a decline in the US economy as we enter the impact of tariffs, and uncertainty surrounding their implementation.
We see that the effects of the uncertain and excessive imports trickle down to the wider economy.
DOGE has been laying off employees in the federal government to accompany this dynamic. The Challenger job cuts report was a huge one.
Naturally, DOGE’s layoffs were a major factor. But the Trump policy uncertainty is also impacting the private sector.
“The Government led all sectors in job cuts in February. (62.242K), followed by retail (38.956K) and tech (14.554K). So far this year, employers have announced 221,812 job cuts, the highest year-to-date total since 2009.”
The jobs report will be released tomorrow and everyone wants to know how bad the job market is going to get. Since the window of this report’s survey was February 9-15, the results will be less than clear as expected, because the number of job cuts has only recently begun to filter into the statistics.
Regardless, it’s clear the trend is toward deterioration — it’s just a matter of how much.
Here’s the current situation:
- The fiscal retrenchment is real and the primary tailwind to the economy the last couple of years — fiscal dominance — is now reversing.
- Fed won’t be taking any proactive steps to change its position as they did in September. As it waits for clarity in the fiscal environment, the Fed has a reactive tilt.
- DOGE has a significant impact, despite all the talk about cutting costs. Layoffs have a real impact and new workers are joining a market that has a low hiring rate.
These factors combine to create an economic environment that is extremely fragile and shows no sign of improvement. It’s not surprising that risky assets are having trouble lately.
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