Adriana Kugler highlights the difficulties in measuring economic activity due to the early rush of imports. She expects this surge to reverse soon, which may lead to bigger price hikes. Current data indicates a slight slowdown in economic growth, but it’s not significant. Core services inflation remains higher than before the pandemic, while progress in core goods inflation has slipped back.

WARN Notices and Layoffs

WARN notices of layoffs and mentions in the Beige Book have risen since the beginning of the year. Kugler is cautious about the economic outlook, with no immediate plans for rate cuts. Kugler’s remarks on the early rush of imports suggest a temporary spike in demand, as companies brought in goods sooner than usual. This often skews short-term trade data, creating a false sense of increased activity. As demand normalizes and excess inventories are depleted, consumer prices are likely to rise more sharply. Traders should pay close attention to upcoming changes in transport, logistics, and wholesale data, which may signal when the reversal might happen. The overall message is that the economy is still growing, albeit more quietly. It’s not stalling, but some areas are still performing better than what policymakers might prefer. Core goods, after showing improvement in past quarters, have now seen renewed price pressures, complicating the medium-term outlook.

Labour Market and Economic Impact

We are particularly concerned about early signs of weakness in the labor market. The increase in WARN notices—required alerts for mass layoffs—suggests that companies may be tightening their budgets. When these notices appear consistently across various industries and states, especially alongside Beige Book insights, they indicate serious consideration among firms, planning for future cuts rather than reacting to an immediate crisis. It’s notable that there’s no shift in the messaging about interest rates. Kugler maintains a cautious approach, emphasizing the need to observe the situation for now. This supports the view that inflation remains persistent in sensitive areas, particularly in services. The lack of discussions about easing suggests that efforts to control inflation will continue, leading traders to consider not just when policy might change, but whether the economy can withstand tighter conditions without a shift in sentiment. In the upcoming weeks, it’s crucial to monitor how companies discuss future bookings, especially in sectors with less pricing power. We anticipate that investors will shift their focus from consumer demand to margins, input costs, and inventory cycles. The irregularities in trade and labor data may not resolve smoothly, increasing the likelihood of surprises in revision-heavy reports like GDP or PCE. Create your live VT Markets account and start trading now.

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