The US economy continues to demonstrate surprising resilience. All of last week’s data came in better than expected. Employment was stronger, with more job openings than expected, and the headline unemployment rate dropped to 4.1%. We also saw factory orders increase at a very strong pace.
There is, unfortunately, still bad news lurking inside the good. If we factor out government hiring, the private sector only added about 74,000 new jobs last month (not a strong number). The only reason the unemployment rate dropped was because more people left the workforce than left their job. There were also several layoffs announced this past week, most notably Microsoft, who will be laying-off about 7000 workers in coming months.
All eyes this week are on Wednesday’s trade deal deadline imposed by the Trump administration. Trump has signalled his willingness to push that deadline to August 1. In my view, the deals that have been done are damaging to US consumers and don’t seem to encourage foreign consumption of US-goods. Net-net, I see the deal with China, for example, as overall negative for economic growth (tariffs on Chinese goods are went from 10% to 50%, and higher for some goods — not to mention, the administration has not released the details of the deal). At a time when US consumers are already weakened, adding the price burden of tariffs might be enough to slow consumption and push the economy into a recession.
The “one big, beautiful bill” that was passed last week may offer some offset to those tariff woes, at least in the short term. There are some stimulus-oriented provisions that could help boost spending, and some provisions that may help markets — the $1000 for children born between 2025 and 2028, for example, could boost market inflows by about $3.6 billion per year (about 6% higher inflows than we currently have, on average).
Overall, I am in wait-and-see mode. The data is mixed, but has been generally negative over the past months. The dollar’s crash may also portend inflation and an overall slowdown (see our Chart of the Week). The tariff issues that sent markets reeling back in April have not been resolved though markets seem to have shrugged them off, pushing into all-time highs. Based on the data, I can see no justification for this, and our strategy has always been to follow the data, which we shall continue to do.
Chart of the Week
The US dollar’s crash has been an under-told story over this year. Between tariff shocks, the ballooning deficit from Trump’s “one big, beautiful bill,” and the administration’s ongoing war of words with Fed Chair Powell, the US dollar has been in freefall. We see in this week’s chart how much it has declined. Relative to the euro, for example, the dollar has lost almost 14% of its value this year, and it has lost 9% relative to UK sterling.
Some economists view a declining currency as a good thing — it generally makes your goods and services less expensive to overseas buyers, thus encouraging exports. The dollar has a unique status, globally, however. The dollar represents a significant share of global trade, so less demand for dollars may indicate slower trade overall. More importantly, it means that a dollar buys 14% less in Europe than it did before, or 6% less in Canada. This creates upward price pressure on goods and services in the US which may yet further slow US consumers.
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