Latest news with #Daco
The Herald Scotland
13-07-2025
- Business
- The Herald Scotland
Economy expected to approach stall speed as tariffs hurt consumers
In the spring, Trump announced a 90-day pause on high double-digit reciprocal tariffs for China and many other countries, easing recession fears and reversing a stock market sell-off. This week, White House officials extended the reprieve to August 1 to provide more time for negotiations. But in recent days, Trump again has ratcheted up his trade threats, unveiling plans for a 50% tariff on imported copper, 50% on all shipments from Brazil and high fees for 14 countries that don't reach a deal with the U.S. by August 1. Already in effect: a 50% levy on metals, 25% on cars and 30% on China, in addition to the blanket 10% charge that appears poised to rise sharply. The Dow Jones Industrial Average tumbled nearly 280 points July 11 on Trump's latest tariff threats. "Risks are intensifying that we may see much higher tariff rates, with consequent effects on inflation and growth," said Jonathan Millar, senior U.S. economist at Barclays. Just 42% of CEOs of small and midsize companies plan to add to their staffs in the next year, lowest on record dating to 2003, according to a June survey by Vistage, a CEO networking group. How close is the US to a recession? Gregory Daco, chief economist at EY-Parthenon, has lowered his odds of a recession this year to 35% from 50% but said the chances of a downturn would climb above 50% if Trump reverts to the tariffs he rolled out in early April. Even without the harsher import fees Trump recently announced, economists have been predicting a notable slowdown in growth the rest the year. "We're carrying much less economic momentum, with a softening labor market trend, inflation about to reaccelerate and income (growth) more subdued," Daco said. Will tariffs lead to inflation? Forecasters have been surprised that tariffs haven't yet had a significant effect on inflation. Daco said that's partly because manufacturers and retailers stocked up on foreign goods in February and March, before the fees took effect. Also, he said, companies have been routing products through bonded warehouses that delay tariff payments. U.S. businesses and foreign exporters have absorbed much of the costs. And higher prices from tariffs don't immediately show up in inflation reports, such as the consumer price index. But all those tactics can delay the inevitable only so long, Daco said. "As inventory buffers thin, bonded warehouse timelines expire and cost absorption runs its course, price pressures will start surfacing more clearly into the second half of 2025," he wrote in a note to clients. Before Trump escalated the trade conflicts, many economists said the levies have pushed the average U.S. tariff rate from about 3% to 15%, a rise that would drive the Federal Reserve's preferred annual inflation measure from 2.7% to about 3.3% by the end of the year. How does immigration affect the economy? Meanwhile, an immigration surge that has bolstered the U.S. labor supply and job growth the past few years "is about to go into reverse," JPMorgan Chase said in a research note last week. The Trump administration is ending provisions that temporarily protected immigrants who lack permanent legal status from deportations for humanitarian reasons. That will likely cause 1.8 million migrants, including about 1.1 million workers, to lose their legal status in the second half of the year, JPMorgan Chase said. Especially affected are industries such as agriculture, construction and hospitality. Already, annual net immigration to the U.S. has slowed from about 3 million the past few years to an annual rate that's set to reach 500,000 by year's end, according to the Congressional Budget Office and economists. That compares to a rate of 900,000 a year before the pandemic. While the slowdown is projected to reduce job growth, forecasters reckoned that would take some time because many immigrants who arrived in recent waves are still settling into jobs. But the spike in deportations could quickly slow America's job engine within months, JPMorgan Chase said. How is the economy doing right now? The economy shrank at an annual rate of 0.5% in the first quarter but forecasters said that was mostly because the flood of imports from companies stocking up had to be subtracted from output (since they're made in foreign countries). Private domestic demand, a more telling measure of the economy's underlying health, increased a solid 1.9%. And economists estimate the government later this month will report 2% growth in the second quarter, according to those surveyed by Wolters Kluwer Blue Economic Indicators. But those forecasters expect quarterly growth to average just 0.7% the second half of the year, in line with Millar's estimate. and above the 0.5% gain Daco projects. That's close to stall speed. From the fourth quarter of 2024 to the fourth quarter of 2025, Millar estimates the economy will grow a meager 0.5%, compared to 2.5% the prior year. Here's a breakdown: Consumer spending Resilient households have propped up the economy the past few years but the threat of higher prices from tariffs has led Americans to rein in their spending, Daco and Millar said. Now, the actual pass-through of the fees into prices will likely have a more tangible impact on consumption, Daco said. Consumers especially have been cutting back on discretionary purchases, such as recreational services, travel and dining out. Income also has moderated, with average annual wage growth falling from about 6% in early 2022 to 3.7% in June. After adjusting for inflation, consumer spending fell 0.3% in May and is expected to rise just 0.7% the second half of the year, according to the Wolters Kluwer survey. Consumption makes up 70% of economic activity. The job market Average monthly job growth has slowed to 130,000 so far this year from 168,000 in 2024. Companies have sharply cut back hiring amid tariff-related uncertainty but remain hesitant to lay off workers following severe pandemic-related labor shortages, Millar said. But Daco said more companies are shedding workers through attrition and retirement, as well as targeted layoffs. Tracy Marlowe, CEO of Creative Noggin, a marketing company based in San Antonio, Texas, said sales were flat last year amid election-related uncertainty. After the election, clients began making requests for new campaigns but pulled back again in early 2025 amid Trump's on-again, off-again tariffs. Marlowe had been planning to add a full-time employee to her staff of 20 later this year but has decided to hold off. Clients "are just trying to figure out how to stay alive," she said. "I'll hire once I need somebody." Coping with the Great Recession and the COVID-19 downturn was easier, Marlowe said, because she knew the roadmap for recovery. By contrast, the trade war "has been a constantly changing roller coaster... It makes it very difficult to predict what's next." The immigration crackdown is set to slow job growth further, Daco said. Business investment Business capital spending surged in the first quarter as firms stocked up ahead of tariffs. But the economists surveyed by Wolters Kluwer expect outlays to fall in the second, third and fourth quarters. Companies already leery about ramping up spending amid the uncertainty are likely to hunker down further as the import costs they absorb squeeze profits, Daco said. Housing Housing starts fell 9.8% in May and single-family starts are down 16% since February, according to Oxford Economics. "Elevated interest rates and higher building material costs due to tariffs will make construction less profitable," Oxford said in a research note.
USA Today
12-07-2025
- Business
- USA Today
US economy poised to slow as Trump's tariffs hit consumers
The cloud of uncertainty that has hovered over the U.S. economy the first half of 2025 threatens to unleash a thunderstorm that dampens growth in the second half as President Donald Trump's higher tariffs hit consumers and his immigration crackdown rocks the job market. While growth was already poised to slow, Trump on July 10 increased the risks of a more pronounced pullback by announcing plans to raise the tariff rate on many Canadian imports from 25% to 35% and impose a blanket 15% to 20% duty on most other countries, up from 10%. On July 12, the tariff threats ramped up again with Trump announcing 30% tariffs on all imports from Mexico and the European Union. In the spring, Trump announced a 90-day pause on high double-digit reciprocal tariffs for China and many other countries, easing recession fears and reversing a stock market sell-off. This week, White House officials extended the reprieve to August 1 to provide more time for negotiations. But in recent days, Trump again has ratcheted up his trade threats, unveiling plans for a 50% tariff on imported copper, 50% on all shipments from Brazil and high fees for 14 countries that don't reach a deal with the U.S. by August 1. Already in effect: a 50% levy on metals, 25% on cars and 30% on China, in addition to the blanket 10% charge that appears poised to rise sharply. The Dow Jones Industrial Average tumbled nearly 280 points July 11 on Trump's latest tariff threats. 'Risks are intensifying that we may see much higher tariff rates, with consequent effects on inflation and growth,' said Jonathan Millar, senior U.S. economist at Barclays. Just 42% of CEOs of small and midsize companies plan to add to their staffs in the next year, lowest on record dating to 2003, according to a June survey by Vistage, a CEO networking group. How close is the US to a recession? Gregory Daco, chief economist at EY-Parthenon, has lowered his odds of a recession this year to 35% from 50% but said the chances of a downturn would climb above 50% if Trump reverts to the tariffs he rolled out in early April. Even without the harsher import fees Trump recently announced, economists have been predicting a notable slowdown in growth the rest the year. 'We're carrying much less economic momentum, with a softening labor market trend, inflation about to reaccelerate and income (growth) more subdued,' Daco said. Will tariffs lead to inflation? Forecasters have been surprised that tariffs haven't yet had a significant effect on inflation. Daco said that's partly because manufacturers and retailers stocked up on foreign goods in February and March, before the fees took effect. Also, he said, companies have been routing products through bonded warehouses that delay tariff payments. U.S. businesses and foreign exporters have absorbed much of the costs. And higher prices from tariffs don't immediately show up in inflation reports, such as the consumer price index. But all those tactics can delay the inevitable only so long, Daco said. 'As inventory buffers thin, bonded warehouse timelines expire and cost absorption runs its course, price pressures will start surfacing more clearly into the second half of 2025,' he wrote in a note to clients. Before Trump escalated the trade conflicts, many economists said the levies have pushed the average U.S. tariff rate from about 3% to 15%, a rise that would drive the Federal Reserve's preferred annual inflation measure from 2.7% to about 3.3% by the end of the year. How does immigration affect the economy? Meanwhile, an immigration surge that has bolstered the U.S. labor supply and job growth the past few years 'is about to go into reverse,' JPMorgan Chase said in a research note last week. The Trump administration is ending provisions that temporarily protected immigrants who lack permanent legal status from deportations for humanitarian reasons. That will likely cause 1.8 million migrants, including about 1.1 million workers, to lose their legal status in the second half of the year, JPMorgan Chase said. Especially affected are industries such as agriculture, construction and hospitality. Already, annual net immigration to the U.S. has slowed from about 3 million the past few years to an annual rate that's set to reach 500,000 by year's end, according to the Congressional Budget Office and economists. That compares to a rate of 900,000 a year before the pandemic. While the slowdown is projected to reduce job growth, forecasters reckoned that would take some time because many immigrants who arrived in recent waves are still settling into jobs. But the spike in deportations could quickly slow America's job engine within months, JPMorgan Chase said. How is the economy doing right now? The economy shrank at an annual rate of 0.5% in the first quarter but forecasters said that was mostly because the flood of imports from companies stocking up had to be subtracted from output (since they're made in foreign countries). Private domestic demand, a more telling measure of the economy's underlying health, increased a solid 1.9%. And economists estimate the government later this month will report 2% growth in the second quarter, according to those surveyed by Wolters Kluwer Blue Economic Indicators. But those forecasters expect quarterly growth to average just 0.7% the second half of the year, in line with Millar's estimate. and above the 0.5% gain Daco projects. That's close to stall speed. From the fourth quarter of 2024 to the fourth quarter of 2025, Millar estimates the economy will grow a meager 0.5%, compared to 2.5% the prior year. Here's a breakdown: Consumer spending Resilient households have propped up the economy the past few years but the threat of higher prices from tariffs has led Americans to rein in their spending, Daco and Millar said. Now, the actual pass-through of the fees into prices will likely have a more tangible impact on consumption, Daco said. Consumers especially have been cutting back on discretionary purchases, such as recreational services, travel and dining out. Income also has moderated, with average annual wage growth falling from about 6% in early 2022 to 3.7% in June. After adjusting for inflation, consumer spending fell 0.3% in May and is expected to rise just 0.7% the second half of the year, according to the Wolters Kluwer survey. Consumption makes up 70% of economic activity. The job market Average monthly job growth has slowed to 130,000 so far this year from 168,000 in 2024. Companies have sharply cut back hiring amid tariff-related uncertainty but remain hesitant to lay off workers following severe pandemic-related labor shortages, Millar said. But Daco said more companies are shedding workers through attrition and retirement, as well as targeted layoffs. Tracy Marlowe, CEO of Creative Noggin, a marketing company based in San Antonio, Texas, said sales were flat last year amid election-related uncertainty. After the election, clients began making requests for new campaigns but pulled back again in early 2025 amid Trump's on-again, off-again tariffs. Marlowe had been planning to add a full-time employee to her staff of 20 later this year but has decided to hold off. Clients 'are just trying to figure out how to stay alive,' she said. "I'll hire once I need somebody." Coping with the Great Recession and the COVID-19 downturn was easier, Marlowe said, because she knew the roadmap for recovery. By contrast, the trade war 'has been a constantly changing roller coaster... It makes it very difficult to predict what's next.' The immigration crackdown is set to slow job growth further, Daco said. Business investment Business capital spending surged in the first quarter as firms stocked up ahead of tariffs. But the economists surveyed by Wolters Kluwer expect outlays to fall in the second, third and fourth quarters. Companies already leery about ramping up spending amid the uncertainty are likely to hunker down further as the import costs they absorb squeeze profits, Daco said. Housing Housing starts fell 9.8% in May and single-family starts are down 16% since February, according to Oxford Economics. 'Elevated interest rates and higher building material costs due to tariffs will make construction less profitable,' Oxford said in a research note.
Yahoo
20-05-2025
- Business
- Yahoo
Stock market rally driven by 'unwarranted optimism' as tariff risk looms over $9 trillion rebound
After a massive drawdown in the initial reaction to President Trump's April 2 tariff announcement, major stock indexes have roared back, with the S&P 500 (^GSPC) adding $9 trillion in market value in just over a month. But after six straight days of gains that have brought the S&P 500 within 3% of a new all-time high, some on Wall Street are cautioning the market rally may have extended too far, even if the probability of recession has declined in recent days. "Equity markets have reacted with unwarranted optimism, overlooking the persistent economic drag posed by elevated tariffs," EY chief economist Gregory Daco wrote in a research note on Tuesday. The latest tariff delay, a 90-day pause on duties between the US and China, moved the estimated effective tariff rate from around 25% down to 14%, according to Daco. As we noted in the Yahoo Finance Chart of the Week, this better-than-expected tariff outcome helped drive the latest boost in stocks. But now, with markets back at levels not seen since late February, Daco fears investors may be ignoring the fact that the effective US tariff rate remains at its highest level since 1939. And while the economic story has improved, forecasts aren't calling for accelerating growth either. Daco projects that US economic growth will approach "stall speed" by the fourth quarter, with GDP rising just 0.6% from the year prior in the final three months of 2025. Read more: What Trump's tariffs mean for the economy and your wallet Daco expects tariffs to eventually result in higher prices and weigh on household demand. He sees real consumer spending growing 2.2% in 2025 and that rate slowing further to 1.1% in 2026. In 2024, real consumer spending advanced 2.8%. "While the near-term outlook is more constructive, risks remain tilted to the downside," Daco said. Still, it appears that investors are hoping the effective tariff rate will come down further, limiting impact to the economy. In a research note sent to clients on May 16, Deutsche Bank US equity strategist Parag Thatte noted that discretionary investors have moved back to an overweight position in stocks, which reflects no slowing in earnings growth or GDP on the horizon. "An increase in tariff rates of this magnitude will weigh on growth, but discretionary investors are likely factoring in additional rollbacks and exemptions once the impacts start to manifest," Thatte wrote. On Monday, JPMorgan Chase (JPM) CEO Jamie Dimon warned that he sees an "extraordinary amount of complacency" in markets after investors clawed back their "Liberation Day" losses. Dimon added that the risks of "stagflation," where economic growth slows and inflation reaccelerates, remain. "I do think there is some complacency [in markets]," Charles Schwab chief investment strategist Liz Ann Sonders told Yahoo Finance when asked about Dimon's comments. Sonders pointed out that at the bottom of the market drawdown, investor sentiment had hit historically low levels. Since then, market sentiment has made a U-turn as a large tech rally has led the rebound. "We may be at that point where the setup, from a sentiment perspective, suggests that the market could have some downside if we get a negative catalyst," Sonders said. "And that's really the best way to think about this market. It's hard to judge it based on what policy announcements are going to be and when they're going to come. That's a fool's errand." Sonders believes a turn in economic data could be the key negative catalyst, should one emerge at all. Consumer sentiment and other surveys have tumbled in the wake of the tariffs, with both businesses and consumers bracing for higher prices. But that hasn't played out in data that measures actual economic activity thus far. Read more: What is consumer confidence, and why does it matter? In April, a reading of wholesale inflation showed "core" producer prices, which exclude the volatile food and energy categories, decreased 0.4% over the prior month. This followed a separate Bureau of Labor Statistics report that showed consumer prices fell to their lowest level in more than four years during April. Sonders noted that those surveys were taken early in April and don't reflect a consistent period in which tariffs have been in place. "If we were to start to see indications of a pickup in inflation, that could be a negative catalyst that would put, maybe, the Fed further on the back of their heels," Sonders said. She added that while there hasn't been any clear sign that the cooling in the labor market is accelerating, that also remains a key risk to the economic narrative that warrants watching. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
20-05-2025
- Business
- Yahoo
Stock market rally driven by 'unwarranted optimism' as tariff risk looms over $9 trillion rebound
After a massive drawdown in the initial reaction to President Trump's April 2 tariff announcement, major stock indexes have roared back, with the S&P 500 (^GSPC) adding $9 trillion in market value in just over a month. But after six straight days of gains that have brought the S&P 500 within 3% of a new all-time high, some on Wall Street are cautioning the market rally may have extended too far, even if the probability of recession has declined in recent days. "Equity markets have reacted with unwarranted optimism, overlooking the persistent economic drag posed by elevated tariffs," EY chief economist Gregory Daco wrote in a research note on Tuesday. The latest tariff delay, a 90-day pause on duties between the US and China, moved the estimated effective tariff rate from around 25% down to 14%, according to Daco. As we noted in the Yahoo Finance Chart of the Week, this better-than-expected tariff outcome helped drive the latest boost in stocks. But now, with markets back at levels not seen since late February, Daco fears investors may be ignoring the fact that the effective US tariff rate remains at its highest level since 1939. And while the economic story has improved, forecasts aren't calling for accelerating growth either. Daco projects that US economic growth will approach "stall speed" by the fourth quarter, with GDP rising just 0.6% from the year prior in the final three months of 2025. Read more: What Trump's tariffs mean for the economy and your wallet Daco expects tariffs to eventually result in higher prices and weigh on household demand. He sees real consumer spending growing 2.2% in 2025 and that rate slowing further to 1.1% in 2026. In 2024, real consumer spending advanced 2.8%. "While the near-term outlook is more constructive, risks remain tilted to the downside," Daco said. Still, it appears that investors are hoping the effective tariff rate will come down further, limiting impact to the economy. In a research note sent to clients on May 16, Deutsche Bank US equity strategist Parag Thatte noted that discretionary investors have moved back to an overweight position in stocks, which reflects no slowing in earnings growth or GDP on the horizon. "An increase in tariff rates of this magnitude will weigh on growth, but discretionary investors are likely factoring in additional rollbacks and exemptions once the impacts start to manifest," Thatte wrote. On Monday, JPMorgan Chase (JPM) CEO Jamie Dimon warned that he sees an "extraordinary amount of complacency" in markets after investors clawed back their "Liberation Day" losses. Dimon added that the risks of "stagflation," where economic growth slows and inflation reaccelerates, remain. "I do think there is some complacency [in markets]," Charles Schwab chief investment strategist Liz Ann Sonders told Yahoo Finance when asked about Dimon's comments. Sonders pointed out that at the bottom of the market drawdown, investor sentiment had hit historically low levels. Since then, market sentiment has made a U-turn as a large tech rally has led the rebound. "We may be at that point where the setup, from a sentiment perspective, suggests that the market could have some downside if we get a negative catalyst," Sonders said. "And that's really the best way to think about this market. It's hard to judge it based on what policy announcements are going to be and when they're going to come. That's a fool's errand." Sonders believes a turn in economic data could be the key negative catalyst, should one emerge at all. Consumer sentiment and other surveys have tumbled in the wake of the tariffs, with both businesses and consumers bracing for higher prices. But that hasn't played out in data that measures actual economic activity thus far. Read more: What is consumer confidence, and why does it matter? In April, a reading of wholesale inflation showed "core" producer prices, which exclude the volatile food and energy categories, decreased 0.4% over the prior month. This followed a separate Bureau of Labor Statistics report that showed consumer prices fell to their lowest level in more than four years during April. Sonders noted that those surveys were taken early in April and don't reflect a consistent period in which tariffs have been in place. "If we were to start to see indications of a pickup in inflation, that could be a negative catalyst that would put, maybe, the Fed further on the back of their heels," Sonders said. She added that while there hasn't been any clear sign that the cooling in the labor market is accelerating, that also remains a key risk to the economic narrative that warrants watching. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Entrepreneur
13-05-2025
- Business
- Entrepreneur
CPI Report: Inflation Reaches Its Slowest Pace Since 2021
The U.S. Bureau of Labor Statistics released its April consumer price index report on Tuesday. Inflation fell in April to its lowest rate since February 2021, per the latest data released Tuesday by the U.S. Bureau of Labor Statistics (BLS). The consumer price index (CPI), which measures the prices of key goods and services, tracked that inflation was at an annual rate of 2.3% in April, a decline from 2.4% in March and a four-year low. The prices of core goods, excluding the volatile food and energy categories, rose 0.2% from March to April, below industry forecasts of 0.3%. Meanwhile, the yearly increase in core goods of 2.8% aligned with industry predictions. According to Bloomberg, consumer prices overall rose less than expected in April. April's CPI data indicates "positive momentum," Rob Holston, EY global and Americas consumer products sector leader, told Entrepreneur in a statement. "Brands should use the positive momentum to strengthen consumer connections and rethink value," Holston stated. "Those that move with the market can thrive – building stronger, more meaningful relationships with consumers." Related: The Fed Kept Rates Unchanged, But an Industry Veteran Says 'Mortgage Rates Will Drop.' Here's Why. Shelter costs were the main reason for the CPI increase in April. The category alone rose 0.3% from March to April, accounting for more than half of the overall monthly increase, per BLS. Energy costs also rose 0.7% over the month, but used car prices were down 0.5% and food prices dropped 0.1%. Meanwhile, the price of eggs decreased by 12.7% from March to April, the largest price drop in the category since 1984, though prices were still up 49.3% from a year ago. How Will the CPI Report Impact Rate Cuts? Gregory Daco, EY's chief economist, told Entrepreneur in a statement that EY now anticipates only two rate cuts instead of three for the year, and predicts that the first rate cut will happen in September instead of July. "For the Fed, tame inflation dynamics and resilient labor market conditions support the case for holding rates steady beyond mid-year," Daco explained. Related: U.S. Businesses Added 155,000 New Jobs in March, According to ADP Data: 'A Good One for the Economy' Federal Reserve policymakers held rates steady at 4.25% to 4.5% after the Federal Open Market Committee meeting earlier this month. The last time the Fed cut rates was at its December meeting, when it lowered rates by 0.25%. Austin Schaul, head of research at financial planning firm Avantax, told Entrepreneur that the April CPI report was "a win for the Fed." "With headline inflation easing to 2.3% – the lowest since February 2021 – Fed Chair Powell has more reason to stay patient on rate cuts," Schaul stated. Daco cautioned that upcoming CPI reports will reflect trade policies, like tariffs. President Donald Trump announced last month that he would levy a universal 10% tariff on all countries. On Monday, the U.S. announced it would cut its tariff rate on Chinese imports to 30% from 145% amid trade talks. Related: The Fed's Decision to Keep Rates Steady Is 'Unsurprising,' According to a JPMorgan Expert. Here's Why. Schaul says that the recent trade de-escalation gives the Fed "some valuable breathing space." "Maybe it's not a green light for cuts just yet, but it's a foot in the door, keeping it open for action if growth slows," he stated.
