ECONOMY WATCH
In the week ending March 15, the advance figure for seasonally adjusted initial claims was 223,000, an increase of 2,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 220,000 to 221,000. The 4-week moving average was 227,000, an increase of 750 from the previous week’s revised average. The previous week’s average was revised up by 250 from 226,000 to 226,250.
As shown before, there is a mini seasonality in the seasonally adjusted claims. Nothing to write home about just yet, but the 4-w m.a. is up 7.2% YoY and is up 4.2% from its mid-March 2023 level.
In the past 2 years, total employment growth (black) slowed from +3.2% YoY to +1.2%, only held positive by education, health care and government employment. In the past 12 months, private employment growth edged back into positive territory but education, health care and government employment has been slowing rapidly, from +4.0% to +2.7%.
From the latest S&P Global US Business Outlook, a tri-annual survey of manufacturers and service providers that was conducted February 10-26, before the latest round of tariff changes were due into effect in early March.
- Many survey respondents are concerned that tariffs will lead to higher prices and could disrupt supply chains.
- Amid concerns that the application of tariffs will raise prices and lead to supply constraints, a greater proportion of firms are expecting an increase in their non-staff costs. The respective net balance rose to +29% in February, up from +26% and its highest level since October 2022.
- US companies anticipate raising their output prices to a firmer degree when compared to last October. The output prices net balance rose to +34%, up from +26% and a one-year high. Again, it was manufacturers (+46%) that anticipated the greater rate of inflation when compared to service providers (+32%).
- Considering these various price trends, the outlook for profitability was little changed in February. The respective net balance for profits came in at +18%, compared to +17% last October. That is well below the series average and points to subdued profitability growth in the year ahead.
- On business investment, US companies are somewhat downbeat when assessing the outlook for capital expenditure, with a net balance of +4% down sharply since last October’s +12% and an eight-year low.
The Philly Fed Manufacturing Survey declined from 18.1 to 12.5 in March, its second consecutive decrease. Importantly, the new orders index fell 13 points to 8.7. Yet, the employment index increased from 5.3 to 19.7, its highest reading since October 2022.
The prices paid index increased 8 points to 48.3, its fourth consecutive increase and highest reading since July 2022.
Looking ahead over the next three months, 64% of the firms expect the impact of uncertainty to worsen over the next three months, and 44% expect supply chain impacts to worsen.
The share of firms expecting higher total capital spending this year (23%) slightly exceeded the share expecting lower spending (20%), and 57% expect spending to be the same. When this question was last asked in October, over 51% of the firms had expected higher spending, 21% had expected lower spending, and 27% had expected the same spending for 2025 relative to 2024.
The diffusion index for future general activity fell 22 points to 5.6 in March, its lowest reading since January 2024.
The future new orders index dropped 31 points to 2.3, its lowest reading since May 2023.
US Existing-Home Sales Top Estimates, Rebound From Bad Weather
Sales of previously owned homes in the US unexpectedly bounced back in February, spurred by a greater supply of houses and improved weather heading into the crucial spring period.
Contract closings increased 4.2% to an annualized rate of 4.26 million in February, according to National Association of Realtors figures released Thursday. The figure exceeded all estimates in a Bloomberg survey of economists.
The supply of previously owned homes jumped 17% from a year ago to 1.24 million, the most for any February since 2020. Even so, the median sales price increased 3.8% from a year ago to $398,400 — a record for the month — extending a run of year-over-year price gains dating back to mid-2023.
Wolf Richter has a better analysis …
Sales of existing homes – single-family houses, townhouses, condos, and co-ops – that closed in February fell by 5.2% from the abysmally low levels a year ago to 257,000 deals, not seasonally adjusted, down by 27% from February 2022 when home sales began their free-fall after prices had spiked to ridiculous levels, thereby crushing demand.
The blue lines connect the Februarys.
… but he should have taken into account that 2024 was a leap year. On a per day basis, existing home sales were down 1.8% YoY.
Anyway, why should we care. The housing market is still totally depressed as Ed Yardeni illustrates. Note the recent decline in pending sales.
Bank of Canada unveils new playbook as Trump’s tariff threats create mayhem
The Bank of Canada is adjusting how it conducts monetary policy to navigate the massive uncertainty caused by U.S. President Donald Trump’s erratic tariff threats, Governor Tiff Macklem said Thursday.
In a speech in Calgary, Mr. Macklem said the central bank will focus on minimizing risks when setting interest rates, rather than trying to figure out an optimal path for monetary policy based on muddy economic forecasts.
“If we were to guess where the economy is heading and make policy to optimize that outcome, we’d risk getting it wrong. Our actions could be ineffective or even make the outcome worse,” Mr. Macklem said, noting that U.S. tariff policy is in flux and the effect of a trade war on inflation and economic growth in Canada remains highly uncertain.
“We need to set policy that minimizes the risk. That means being less forward-looking than normal until the situation is clearer. And it may mean acting quickly when things crystallize. We need to be flexible and adaptable,” he said. (…)
“We know that some prices will rise when the tariffs hit – that’s not something monetary policy can stop. What monetary policy can – and must – do is prevent those initial, direct price increases from spreading,” Mr. Macklem said. “Simply put, we need to make sure that a tariff problem doesn’t become an inflation problem.”
The U.S. President’s aggressive use of tariffs has created a “new economic crisis” for Canada, Mr. Macklem told the audience at an event hosted by Calgary Economic Development. However, it’s far from clear how the trade war with the U.S. will play out. (…)
This back-and-forth and pervasive uncertainty means it’s almost impossible to do economic forecasting, Mr. Macklem said. “It’s very hard for any of us on Governing Council to have high conviction about the most likely outcome. Several outcomes can all look plausible.” (…)
But if high and broad-based tariffs are applied and remain in place for an extended period of time, “that could very well lead to a recession,” Mr. Macklem said in a press conference after the speech. (…)
“The more inflationary the impact, the less scope monetary policy has to support the economy. Instead, it needs to put more focus on anchoring inflation expectations, which risk drifting up when inflation rises more and more quickly,” Mr. Macklem said. (…)
“An environment where the Bank of Canada is going to put more weight on realized data and less weight on forward-looking impacts from trade policy is an unambiguously hawkish shift in the current context,” Andrew Kelvin, head of Canadian and global rates strategy at Toronto-Dominion Bank wrote in a note to clients following the speech.
“Ultimately, we believe that the damage wrought by trade disruptions will warrant additional easing this year, and we are going to continue to hold our 2 per cent terminal rate forecast for July. Certainly though, between the February CPI data, the March BoC interest-rate announcement, and today’s speech, the odds of a pause somewhere along the way to 2 per cent does seem to be rising,” Mr. Kelvin said. (…)
Wednesday, reviving the infamous pandemic transitory team, Jay Powell told us that the FOMC will be more attentive to downside risks to growth versus upside risks to inflation. While the BoC will be less forward-looking, i.e. more data dependent, the Fed will be looking through a “transitory” spike in inflation due to higher tariffs.
The Fed, and Trump team, are hoping that consumers will also see through “transitory inflation” and keep spending. They may actually get stagflation. Good luck with that.
I have previously documented the McKinley tariff period (Fear). In 2016, the Cato Institute, using Alan Reynolds 1979 article about the Great Crash, chronicled the Smoot-Hawley tariff era. Things are far more complex than many think. History does rhyme…
Many scholars have long agreed that the Smoot-Hawley tariff had disastrous economic effects, but most of them have felt that it could not have caused the stock market collapse of October 1929, since the tariff was not signed into law until the following June. Today we know that market participants do not wait for a major law to pass, but instead try to anticipate whether or not it will pass and what its effects will be.
Consider the following sequence of events:
The Smoot-Hawley tariff passes the House on May 28, 1929. Stock prices in New York (1926=100) drop from 196 in March to 191 in June. On June 19, Republicans on the Senate Finance Committee meet to rewrite the bill. Hoping for improvement, the market rallies, but industrial production peaks in July, and dips very slightly through September. Stocks rise to 216 by September, hitting their peak on the third of the month. The full Senate Finance Committee goes to work on the tariff the following day, moving it to the Senate floor later in the month.
On October 21, the Senate rejects, 64 to 10, a move to limit tariff increases to agriculture. “A weakening of the Democratic-Progressive Coalition was evidenced on October 23,” notes the Commercial and Financial Chronicle. In this first test vote, 16 members of the anti-tariff coalition switch sides and vote to double the tariff on calcium carbide from Canada.
Stocks collapse in the last hour of trading; the following morning is christened Black Thursday.
On October 28, a delegation of senators appeals to President Hoover to help push a tariff bill through quickly (which he does on the 31st). The Chronicle headlines news about broker loans on the same day: “Recall of Foreign Money Grows Heavier-All Europe Withdrawing Capital.” The following day is stalemate. Stocks begin to rally after November 14, rising steadily from 145 in November to 171 in April. Industrial production stops falling and hovers around the December level through March.
On March 24, 1930, the Senate passes the Smoot-Hawley tariff, 222 to 153. Debate now centers on whether or not President Hoover will veto. Still, stocks drop 11 points, to 160, in May. On June 17, 1930, despite the vigorous protests of a thousand economists, Hoover signs the bill into law, noting that it fulfills a campaign promise he had made, and stocks drop to 140 in July.
The Commercial and Financial Chronicle dated June 21, 1930 led off with the major events of the week –“the signing by the President of the Smoot-Hawley tariff bill” and “a renewed violent collapse of the stock market.”
Without ever quite linking the two events, the Chronicle did observe that “if the foreigner cannot sell his goods to us he cannot obtain the wherewithal to buy our goods.” Other sections noted that international stocks were particularly hard hit, that 35 nations had vigorously protested the tariff and threatened retaliation, and that Canada and other nations had already hiked their own tariffs “in view of the likelihood of such legislation in the United States.”
It may be hard to realize how international trade could have so much impact on the domestic economy. For years, in explaining income movements in the Thirties, attention has instead been focused on federal spending and deficits. Yet on the face of it, trade was far more important: exports fell from $7 billion in 1929 to $2.5 billion in 1932; federal spending was only $2.6 billion in 1929 and $3.2 billion in 1932. In 1929, exports accounted for nearly seven percent of our national production, and a much larger share of the production of goods (as opposed to services). Trade also accounted for 15 to 17 percent of farm income in 1926–29, and farm exports were slashed to a third of their 1929 level by 1933.
Even these numbers, however, understate the significance of trade. Critical portions of the U.S. production process can be crippled by a high tax on imported materials. Other key industries are heavily dependent on exports. Disruptions in trade patterns then ripple throughout the economy. A tariff on linseed oil hurt the U.S. paint industry, a tariff on tungsten hurt steel, a tariff on casein hurt paper, a tariff on mica hurt electrical equipment, and so on.
Over eight hundred things used in making automobiles were taxed by Smoot-Hawley. There were five hundred U.S. plants employing sixty thousand people to make cheap clothing out of imported wool rags; the tariff on wool rags rose by 140 per cent.
Foreign countries were flattened by higher U.S. tariffs on things like olive oil (Italy), sugar and cigars (Cuba), silk (Japan), wheat and butter (Canada). The impoverishment of foreign producers reduced their purchases of, say, U.S. cotton, thus bankrupting both farmers and the farmers’ banks.
It should be obvious that an effective limit on imports also reduces exports. Without the dollars obtained by selling here, foreign countries could not afford to buy our goods (or to repay their debts).
From 1929 to 1932, U.S. imports from Germany fell by $181 million; U.S. exports to Germany fell by $277 million. Americans also had little use for foreign currency, since foreign goods were subject to prohibitive tariffs, so the dollar was artificially costly in terms of other currencies. That too depressed our exports, which turned out to be particularly devastating to farmers-the group that was supposed to benefit from the tariffs.
There had already been some damage done (particularly to farm exports) by the tariff legislation of 1921 and 1922. As Princeton historian Arthur Link points out, however, “its only important changes were increased protection for aluminum, chemical products, and agricultural commodities.” Smoot-Hawley broadened the list to include 3,218 items (including sauerkraut), and 887 tariffs were sharply increased, on everything from Brazil nuts to strychnine. Clocks had faced a tariff of 45 percent; Smoot-Hawley raised that to 55 percent, plus up to $4.50 apiece. Tariffs on corn, butter, and unimproved wools were roughly doubled. A shrinking list of tariff-free goods no longer included “junk,” though leeches and skeletons were still exempt. (…)
A number of seemingly separate explanations of the Great Crash fit together quite well once the importance of anticipated tariffs is acknowledged. Charles Kindleberger, in Manias, Panics, and Crashes, describes some structural collapse in the financial system: “Lending on import, for example, seems to have come to a complete stop.” But refusal to finance imports makes perfect sense if lenders were correctly anticipating steep tariffs ahead. There were early cancellations of import orders in 1929 that likewise reflected rational expectations, and import prices were among the first to fall. (…)
The market suffered continual policy assaults after 1930. In early April of 1932, the Commercial and Financial Chronicle reports “the market fell into a complete collapse . . . owing to the approval by the House of Representatives of an increased tax on stock sales.”
The Dow bottomed on July 8, when (as the Chronicle of the following day reported) there had been some good news –the Tariff Commission had trimmed 18 tariffs, and a House subcommittee was looking into ways to cut taxes by eliminating duplication with states.
On Tuesday, September 19, candidate Roosevelt called the tariff “the road to ruin” and pledged to negotiate reductions in tariffs as soon as he took office. The following Saturday, the Chronicle was astounded that the “market again sharply reversed its course, and on Wednesday prices suddenly surged upward in a most sensational fashion.”
MAXIMUM TRANSPARENCY
Via the NYT:
The Trump administration scrambled to minimize fallout on Thursday after exposing personal information, including Social Security numbers, of hundreds of congressional staff members, intelligence researchers and even an ambassador when releasing files pertaining to the death of President John F. Kennedy.
The exposure of personal details, as well as long-guarded secrets about Cold War spycraft, came as a result of the National Archives uploading 64,000 pages of documents related — some very tangentially — to Kennedy’s 1963 assassination.
White House officials acknowledged on Thursday that it was only after the papers were made public that they began combing through them for exposed details.
Normally, personal information like names, Social Security numbers and home addresses are scrubbed from declassified files.
Mr. Trump’s eagerness to make the files public without redactions, fulfilling a promise he has made since his first campaign, caused the private information to be exposed.
“President Trump delivered on his promise of maximum transparency,” Karoline Leavitt, the White House press secretary, said in an email.
His national security team was stunned and forced to scramble after the president announced on Monday that he would release the Kennedy documents with only 24 hours’ notice.
Tulsi Gabbard, the director of National Intelligence, championed the untouched pages. “President Trump is ushering in a new era of maximum transparency,” she wrote in an X post on Tuesday, adding, “Promises made, promises kept.”
A former lawyer for the Trump campaign, Joseph diGenova, 80, was among the people whose personal data was revealed to the public, according to The Washington Post. “It’s absolutely outrageous,” Mr. diGenova, a frequent and ardent supporter of the president, told the newspaper, adding, “It’s like a first-grade, elementary-level rule of security to redact things like that.”
The same Karoline Leavitt said on March 11: “Tariffs are a tax cut for the American people”
During a White House press briefing on March 11, 2025, Press Secretary Karoline Leavitt stated that “Tariffs are a tax cut for the American people”. This statement came during a tense exchange with Associated Press reporter Josh Boak, who challenged her characterization of tariffs.
When Boak questioned her understanding of tariffs, saying “I’m sorry, have you ever paid a tariff? Because I have. They don’t get charged on foreign companies. They get charged on the importers,” Leavitt responded by calling his question “insulting” and said she regretted giving a question to the Associated Press.
I am sure she does…