There’s no question that President Donald Trump is stress testing the resilience of the economy with what we’ve been (objectively) calling Trump’s Tariff Turmoil (TTT). The latest developments on Friday: Trump declared that China is violating terms agreed upon in its trade deal with the US, and he raised the tariff on aluminium and steel from 25% to 50%.
Nevertheless, the resilience of the economy should be confirmed by this week’s batch of economic indicators, with possibly a few exceptions:
(1) Construction expenditures and employment. April’s construction spending (Mon) might show an increase to yet another record high (chart). The big picture shows that it remains strong outside of housing, which is holding up surprisingly well thanks to strength in home improvement spending. This should help keep construction employment at record highs (Fri).
Meanwhile, the onshoring and infrastructure rebuilding trends suggest this dynamic is likely to continue.
(2) Purchasing managers’ surveys. May’s manufacturing Purchasing Managers’ Index (Mon) likely remained weak according to the regional business surveys (chart). But the services PMI (Wed) is almost certain to perform well, in line with S&P Global’s services measure of PMI business activity; that rose to a two-month high of 52.3 in May, well into the expansion zone.
(3) JOLTS. April’s Job Openings and Labor Turnover Survey (Tue) should signal that the job market remained sound. The May consumer confidence index survey confirmed this assessment, as 31.8% of respondents agreed that jobs are plentiful (chart).
(4) Challenger layoffs. Recently, the Challenger job-cuts report is proving that science fiction is becoming science fact in real time. May’s report (Thu) will show that AI took more IT jobs as Microsoft (NASDAQ:MSFT), CrowdStrike (NASDAQ:CRWD), Duolingo (NASDAQ:DUOL), Walmart (NYSE:WMT), news site Business Insider and others shed staff (chart).
That’s not the whole story, though. For all the fanfare surrounding Elon Musk’s few months in Washington, his Department of Government Efficiency (DOGE) achieved little. And layoffs more broadly across sectors remain rather subdued.
(5) Employment & unemployment. May’s jobs report (Fri) has the greatest potential to change minds at the Fed on whether policymakers think the time is right to ease. We’re expecting a gain of between 125,000-150,000 jobs, mostly spread across leisure & hospitality, financial services, and health care, as the Baby Boomers spend their vast retirement savings.
Based on recent trends of weekly unemployment insurance claims, the jobless rate should stay around 4.2%. It could be a bit higher if the duration of unemployment increases slightly.
Overall, though, we expect the labor market to continue to confound the skeptics and the Fed to take its time.