Economic Data Tracker – 
Mixed inflation signals thus far

Trend watch

Right on cue air passenger counts have jumped to 18.1 million, which is fairly typical for the third week of May as traffic starts to climb with the start of summer. The unusual part is the nearly 1 million (951,498) week-over-week jump was in a non-holiday week.

Also, the Port of Los Angeles, the largest U.S. port, reported that April container unit volumes surged 8.3%. Together with its sister-port Long Beach, the year-to-date volume for the two largest U.S. ports jumped 14.3% compared to the same period last year. It remains to be seen what the rest of the ports report for April. Private freight figures that track freight volumes have noted strong April trends. 

Our take

The two main inflation gauges – for consumer and wholesale prices – were mixed in April. Consumer prices reaccelerated in April after falling in March. Prices for services rose 0.3%; even stripping out items such as shelter and energy (i.e., utilities), services prices rose.

Meanwhile, wholesale prices decreased in April driven by declines in food and energy prices. But those were mostly one-off, including a sharp drop in egg prices (see slide 10), along with a $5 per barrel decline in U.S. crude oil prices, which has largely been reversed in past two weeks.

More importantly, the vast majority of imported U.S. goods sold in April weren’t subject to the new tariffs. The notable exceptions were the 25% tariffs on steel and aluminum (effective March 12), 25% tariffs on imported automobiles (April 3), and on certain auto parts (May 3).

Accordingly, it’s too soon to draw strong conclusions based on the April inflation. It will likely take several more weeks for the increased tariffs to ripple through supply chains and make their way to store shelves. Thus, we maintain our warning to brace for higher prices.

That said, we’d also reiterate our view that, while tariffs will contribute to increased prices, tariffs won’t likely be enough to trigger a U.S. recession on their own. However, tariffs act like a tax, raising prices and reducing demand. In turn, reduced demand typically necessitates lower production and, eventually, fewer workers. This is the crux of the prevailing recession fears.

Furthermore, there’s very little evidence of a pullback in consumer demand – as evident with the April retail sales data (slides 7 and 8). On the other hand, consumers have yet to see widespread price increases due to tariffs. Again, it's simply too soon to draw strong conclusions. 

Bottom line

The U.S. economy has been resilient, though many things seem to be in a holding pattern awaiting resolution on the tariffs. The longer this uncertainty lingers, the more intense the headwind for the economy becomes in the near term. That has contributed to the recent bouts of volatility in financial markets, which we expect will continue for the foreseeable future.