Chief Economist Eugenio J. Alemán discusses current economic conditions.
On March 4, 2025, the Trump administration imposed tariffs of 25% on Canada and Mexico and increased tariffs on Chinese imports to 20% from the previous 10% imposed earlier in the year. Retaliatory measures followed soon after as both Canada and China announced their own tariffs on imports from the U.S. Mexico, on the other hand, indicated that it will decide on the imposition of tariffs over the weekend, which could indicate that there may be some agreement in the works. Furthermore, reports on Tuesday indicated that the U.S. Secretary of Commerce, Howard Lutnick, said that there may be a compromise agreement between the U.S., Canada, and Mexico.
On March 5, 2025, President Trump indicated that tariffs on automobiles from Canada and Mexico will have a reprieve of one month to give time for the auto industry to bring more production into the U.S. One month? It took the U.S. automobile industry more than ten years to retool and adapt after the surge in petroleum prices in the 1970s and early 1980s, and when they finally adapted, Japanese automobile producers had almost taken over the small automobile market.
When we teach economics courses, we say that the ‘long run’ is the time needed for various types of industries to adapt. For an ice-cream parlor the long run is, perhaps, six months, as capital investments to adapt do not take long. However, for the automobile industry, the long run is probably close to five to ten years. That is, one month would make no difference but could push the industry to start importing more to get ahead of tariff increases, and that could put further upward pressure on imports and weaken economic growth further.
On March 6, 2026, the U.S. issued another one-month suspension of the tariffs on Canada and Mexico.
Our readers know that we are no fans of tariffs, as they create more harm than benefits. However, if we are going to impose tariffs, let’s do it and move on. These levels of uncertainty are not good for economic activity as they distort the decision-making process of businesses and also affect consumer behavior to the detriment of sustained economic growth.
We remain in the camp that the threat of tariffs on Canada and Mexico are a negotiating tool and leverage to obtain some other objectives, and they may be short lived and/or lower than the current 25%, but political decision makers have to realize that the current environment will have a cost to the U.S. economy.
As we have said, one of the reasons the economy has remained in expansion has been the growth in non- residential investment. However, all the noise from this game of ‘impose-it-impose-it-not,’ ‘delay-it-delay- it-not,’ is highly detrimental to economic activity, and the first quarter of the year will probably remind us of just how detrimental it is.
February employment: Keep calm and carry on… at least for now
The February nonfarm payroll employment reminded us, again, of what we have always said: “markets take the elevator while the economy takes the stairs.”
We are not naïve and think that all is fine and dandy, but news travels much more slowly in economy- land than in market-land, and the jobs report is a reminder of this. We are still looking for the uncertainty created over the last month and a half to have a larger impact on the labor market than what this report showed, but we are also reminded that all this heightened noise is going to subside, and the economy is going to resume its expansionary path.
Reading headline news reports on how “disappointing” the job numbers were in February supports our argument that news outlets many times use headlines to sell the news. However, there was nothing disappointing in the report. If the creation of 151,000 jobs in one month is disappointing, then we need to change the definition of disappointing.
There was nothing disappointing about today’s job report. Perhaps the most worrisome insights we got from the January and February reports were that jobs related to consumer demand were weak, which is consistent with personal consumption expenditures in January and with what we have heard from businesses reporting from February. Some of this weakness is probably related to the U.S. experiencing the coldest winter since 1988 but also due to heightened uncertainty about the future impact of current policies.
However, nothing in the report indicates that the flow of income from job creation has hindered the ability of the American consumer to continue to consume, at least for now. Again, we do believe that this may change during the next several months, but for now, just “keep calm and carry on.”
Economic and market conditions are subject to change.
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Consumer Price Index is a measure of inflation compiled by the US Bureau of Labor Statistics. Currencies investing is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
Consumer Sentiment is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in the first quarter of 1966. Each month at least 500 telephone interviews are conducted of a contiguous United States sample.
Personal Consumption Expenditures Price Index (PCE): The PCE is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The change in the PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation. A value above 100 signals a boost in the consumers’ confidence towards the future economic situation, as a consequence of which they are less prone to save, and more inclined to consume. The opposite applies to values under 100.
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GDP Price Index: A measure of inflation in the prices of goods and services produced in the United States. The gross domestic product price index includes the prices of U.S. goods and services exported to other countries. The prices that Americans pay for imports aren't part of this index.
Employment cost Index: The Employment Cost Index (ECI) measures the change in the hourly labor cost to employers over time. The ECI uses a fixed “basket” of labor to produce a pure cost change, free from the effects of workers moving between occupations and industries and includes both the cost of wages and salaries and the cost of benefits.
US Dollar Index: The US Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The Index goes up when the
U.S. dollar gains "strength" when compared to other currencies.
Import Price Index: The import price index measure price changes in goods or services purchased from abroad by U.S. residents (imports) and sold to foreign buyers (exports). The indexes are updated once a month by the Bureau of Labor Statistics (BLS) International Price Program (IPP).
ISM Services PMI Index: The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers' Index (PMI) (also known as the ISM Services PMI) report on Business, a composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector.
Consumer Price Index (CPI) A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households.
Producer Price Index: A producer price index(PPI) is a price index that measures the average changes in prices received by domestic producers for their output.
Industrial production: Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of gross domestic product, they are highly sensitive to interest rates and consumer demand.
The NAHB/Wells Fargo Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income, based on standard mortgage underwriting criteria.
Conference Board Coincident Economic Index: The Composite Index of Coincident Indicators is an index published by the Conference Board that provides a broad-based measurement of current economic conditions, helping economists, investors, and public policymakers to determine which phase of the business cycle the economy is currently experiencing.
Conference Board Lagging Economic Index: The Composite Index of Lagging Indicators is an index published monthly by the Conference Board, used to confirm and assess the direction of the economy's movements over recent months.
New Export Index: The PMI New export orders index allows us to track international demand for a country's goods and services on a timely, monthly, basis.
Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.
The Conference Board Leading Economic Index: Intended to forecast future economic activity, it is calculated from the values of ten key variables.
Source: FactSet, data as of 12/6/2024
