Tomorrow we get NFP: It’s too soon to see the havoc the government is wreaking on jobs

There’s a lot to be said about the tariff situation but let’s not forget real data should rival Trumps fake data. The ADP rise is private sector payrolls is nice but went mostly unnoticed. Tomorrow we get nonfarm payrolls and again, it’s too soon to see the havoc the government is wreaking on jobs. The employment situation is in a pushme-pullyou space. We have a skilled labor shortage and also falling job openings while employment per se is stable.

Today we get the usual weekly unemployment claims, the service PMI’s from both ISM and S&P, and the Feb trade deficit. Canada also reports its trade balance. A number of Feds speak but cannot appropriately comment on tariffs, which as taxes are “fiscal.”

Years ago we were the only commentator showing the Atlanta Fed GDPNow releases bit it has become popular of late. The latest update calls for Q1 GDP to fall by -3.7% from -2.8% last week.  The gold import-adjusted version is s till negative t -1.4%. The key component: Q1 “real final sales to private domestic purchasers growth declined from 1.5 percent to 0.4 percent.”

After Trump’s horrendous performance late yesterday, a number of economists showed up on TV and in the press to say Q2 will be a negative.

Tariffs: As we all know now by now, the Trump tariff announcement was far worse than expected, and displayed a stunning incompetence as well as a plethora of outright lies. Every country gets a 10% tariff. The list includes even uninhabited islands, which amused the press no end. Then specific countries get additional tariffs based on some undisclosed formula, so that the EU is reported to impose a 39% tariff on the US, so the US is retaliating with a proportion of that (20%). This is supposed to show US kindness and generosity since it’s not full reciprocity.

One suggestion is that it’s a country’s trade surplus divided by its exports to the US. Huh? This smells like the loony advisor Navarro. (The formula solution idea comes from investment manager Ben Hunt and repeated more than once on cable TV.)

That the EU imposes a 39% tariff on imported US goods is simply not true. The actual number is about 3%. The weird 39% supposedly contains “non-monetary factors.” This might mean the exchange rate, hardly non-monetary, implying the bright boys in the White House know what the true value of the euro should be. We don’t know for sure, but the Trump “reciprocation” may also include currency manipulation (true of one, China), non-tariff barriers (huh?) and “cheating.”

Bottom line, the rate on all imports is now around 22% (from 2.5% in 2024), according to Fitch. “That rate was last seen around 1910…”

A seeming ray of light was the US Senate passing a resolution that the tariffs on Canada be pulled back, with some Republicans leaving Trump and voting for it. Now it goes to the House, but there the subservient leader is blocking a vote by diddling with what constitutes a “day.”

The press is loaded with stories about how much worse the inflation and recession will be now that we have seen the lunatics running the asylum. We await the next Economist cover. At the end of the Biden administration, the cover was “America—the Envy of the World.” The new one is going to be a doozie.

Two things: this is not over by a long shot. First we have to see how the world responds, and then how Trump responds to those responses. After all, he thinks he’s a negotiator and deal-maker. As noted before, this is not ending anytime soon. It could even last for years. Tigers and stripes. Leopards and spots. Bears and woods.

Second, it may not be about trade or substituting tariffs for the income tax or any of the other goofy BS he says. As the Guardian newspaper postulates, it’s about flexing muscles and demonstrating Power.  “Donald Trump has probably not read much Michel Foucault. But he appears to embody the French philosopher’s claim that “politics is the continuation of war by other means”. Nowhere is this more apparent than in his fondness for tariffs. He presents taxing foreign imports as a way to rebuild the American economy in favour of blue-collar workers left behind by free trade and globalisation. Yet he plainly thinks that politics is not about truth or justice. It is about leverage and supremacy.”

From earlier and worth remembering: Trump says tariffs will raise $6 trillion, which is ridiculous. Total imports in 2024 were $4.1 trillion. Two: a takeaway from the FT article: if the US imposes a universal 25% tariff and all affected countries retaliate with the same 25%, US inflation rises to 5.5%. Also, about 40% of S&P company revenues are from overseas branches and sales. It will take some time for forward earnings to get re-calibrated, and thus the P/E ratios.

A ray of light—Politico reported that the White House gossip has it that Musk is on his way out. Then theWhite House and Musk denied it.

Forecast

We are glad we did not change signals to long dollars, as so many charts indicated. This time the risk-off = safe haven dollar didn’t work, which is the right way to view the troublesome and incompetent US leadership. Analysts are now asking who fares worse than the US in terms of lost growth. The answer so far is mostly China. See the Yuan chart in the chart package.

The actual announcement is only the beginning of the saga. Trump will keep us guessing for a very long time about the tariff numbers as people he considers vassals go to Washington to bow before the king and beg for relief. “Uncertainty” of one sort has been replaced with another.

Tidbit: Economist Krugman calls the tariffs “malignant stupidity.” He also named Surowiecki, former New York economics writer, as the possible decoder of the tariff formula and reproduces the Trade Rep’s formula, which was both confirmed and denied by the Trade Rep. It means basically that “the assumed level of a country’s protectionism is equal to its trade surplus with America divided by its exports to America.”

Needless to say, it’s a stupid formula that fails to deliver what it promises, and could have been written by a bad first-year student. Besides, its excludes services. “There’s so much wrong with this approach that it’s hard to know where to start.” It could even have been devised by AI.

Krugman is another one pointing out “Who makes policy this way? The key point is that Trump isn’t really trying to accomplish economic goals. This should all be seen as a dominance display, intended to shock and awe people and make them grovel, rather than policy in the normal sense.” 

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