This is a light data week, and corporate earnings reports are wrapping up. Earnings results have been very good, with companies growing earnings around 16% over this time last year. This has created a bit of a tug-of-war in markets because, while earnings have been good, the economic outlook has been worsening. “Tariffs”, for example, has been a recurring conversation in earnings calls, and most companies appear to not know what effect tariffs will have on their earnings moving forward.
Last week we saw employment data, which was worse than expected. The US created only 143,000 jobs last month, which is below the amount required to keep pace with population growth. The unemployment rate dropped, but almost entirely due to the change in population — the actual number of unemployed stayed the same (6.8 million). Consumers also appear strained after last week’s very surprising jump in credit outstanding — rather than the $12 billion expected, it appears consumers have used almost $41 billion of credit in December.
Trump’s trade war has also picked up steam. Responding to US actions, China announced 15% tariffs on several goods including trucks, natural gas, coal, and oil. Today, the administration is expected to announce 25% tariffs on steel and aluminum imports.
As I have said, the economic picture is mixed with underlying data weakening but corporate earnings coming in strong. Employment will need to improve, and earnings remain strong for my outlook to switch from “meh” to growth.
Chart of the Week
The Trump administration has repeatedly mentioned two dynamics when it comes to other countries: their trade balance with the US and their military spending. This week’s chart looks at European countries on those two axes, with military spending on the horizontal and their trade balance with the US on the vertical. The top-left corner is probably in Trump’s crosshairs as these countries export much more to the US than they import, and their spending is well below the 2% NATO target on defense.
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