US Tariff effects – Here, there, but not yet everywhere
The impact of President Donald Trump’s trade war is more visible in some data than others.
While tariffs had their fingerprints all over Q1 GDP, it was only in the details of the April jobs report that some tariff effects could be discerned.
Although the labor market is resilient, conditions can change quickly. Beneath the stability of the unemployment rate were also some concerning signs. Flows in and out of joblessness indicate the unemployment rate will creep higher over the next six months, but this predicted rise will be magnified by shocks to sentiment, wealth, and real incomes, among others.
First-quarter GDP came in well above our forecast for a much larger decline. The surprise was largely in inventories where the Bureau of Economic Analysis made a large manual adjustment that was not visible in the source data. We think some economic activity tied to the surge in imports is still not showing up in the Q1 GDP numbers, so we will pay close attention to the revised data in upcoming data releases.
The forthcoming May baseline will incorporate lower tariff levels than assumed. The baseline will assume the US cuts tariffs on China in Q1 2026 once it’s secured more commitments from allies to guard against Chinese manufacturing overcapacity.
