Trump has made the "noise" of conventional economic data very large. To further understand the USA economy, one should pay attention to this report...
Recently, as investors strive to cope with the Trump administration's constantly changing tariff plans and their economic impacts, monitoring the stock market has been a "painful" experience.
Michael Gapen, the chief economist at Morgan Stanley USA, pointed out that Trump's policies have made conventional economic data "very noisy," complicating investors' outlook on the market.
Gapen stated that to gain a more reliable understanding of the economy's health, investors should pay attention to the monthly non-farm payroll reports.
He added that the key indicator to watch is whether the pace of new job creation in the USA labor market is sufficient to keep wage growth consistently above inflation.
Gapen explained, "If we don’t have enough new jobs, the economy will slow down. I believe as long as we add between 100,000 to 150,000 jobs each month, there will be enough buffer, and we will be fine. Once it starts to fall below 100,000, you have to question its sustainability."
So far, the employment report shows that, amid high policy uncertainty, the labor market appears to be holding firm. In March, the USA economy continued to add jobs at a strong pace, with 228,000 new jobs created, although the unemployment rate also slightly rose to 4.2%.
On Thursday, Federal Reserve Chairman Powell provided some additional assurances regarding the health of the USA labor market.
Powell stated at the Chicago Economic Club: “Wage growth continues to slow but is still generally above inflation. The labor market seems to be robust, fairly balanced, and is not a significant source of inflationary pressure.”
Investors will receive the latest information on the USA labor market on May 2, when the non-farm employment report for April will be released.
Gapen also pointed out that the issue of immigration is equally important to the current outlook for the USA economy as tariffs.
In March of this year, the U.S. Customs and Border Protection (CBP) reported that the number of crossings at the southwest border was 7,181, the lowest level on record in the USA. In contrast, the number of crossings at the USA southwest border during the same period last year was 137,473.
Fighting illegal immigration has been an early priority of the Trump administration, which has pushed strategies such as "mass deportation" and strengthening scrutiny of green card and visa holders. Gapen asserts that the sharp decline in the number of immigrants is likely to affect the growth of the USA labor force.
Gapen said: “It is even possible that job growth slows while still accompanied by low unemployment rates and a tight labor market.” He pointed out that this could lead to a stagflation scenario, where inflation rises while growth slows.
Despite some policies proposed by Trump during his presidential campaign, such as deregulation and tax cuts that could eventually promote growth, Gapen warns that “tariffs and immigration (policies) will weigh on the economy this year.”
Gapen stated that, although there is some slowdown, his firm does not predict a recession. His outlook for the economy is that “it will grow, just at a slower pace.”
Gapen believes that in this environment, diversification of assets is key. He suggests balancing the portfolio with Cash, short-term government bonds, and other defensive investments that may perform well during economic downturns.
He said, "As we all know, we often hear announcements about tariffs, so they attract attention... We are in a highly uncertain period, and therefore the potential paths the economy may face are more numerous than in the past."
He continued, "When the economy may head towards so many different paths, diversification of investments is your friend."
Editor/Rocky
