More signs of May data swings due to tariffs

Trend watch

The summer solstice is today, June 20^th, which marks the official start of summer. Yet, summer travel has been in full swing for several weeks. The weekly air passenger counts jumped 4.3% and crossed 19.3 million, which is highest level this year and pushed the year-to-date total slightly ahead of 2024. It was also the fifth busiest week all-time; all four of the top weeks were set during June and July 2024.

Our unscientific guesstimate based on recent trends suggest that weekly air passenger counts should touch 20 million this summer. The all-time record of 19.7 was set last June.

Elsewhere, container freight volumes at U.S. ports were hammered by the tariffs in May. Ship bookings from China to the United States, which we’ve shown here in prior weeks, began to rebound in mid-May after tariffs were relaxed. Those ships have started to arrive in the U.S. as rail volumes climbed last week and continued to recover after an ugly five-week slide during May and early June (see slide 6). 

Our take

Freight is a leading economic indicator by its nature. Companies typically order goods – either components within manufacturing supply chains or finished goods. Both of which indicate increased economic activity, and vice versa.

Indeed, freight volumes have swung wildly in the past two months due to on-again/off-again tariffs, particularly for China, which is the third largest trading partner overall, but account for roughly one-third of imported container volumes.

Freight volumes at U.S. ports surged in March and April as companies scrambled to front run tariffs but collapsed in May, reflecting the temporary spike in tariffs to 145% on goods imported from China (subsequently relaxed to 30%). While ports reported volumes monthly, we’re already seeing U.S. rail volumes – which are reported weekly – starting to recover, albeit slowly. This recovery will continue based on the surge in the bookings for container ships from China to the United States, which began to rebound in mid-May after tariffs were relaxed but take roughly four weeks to arrive.

With turbulence likely as the ripple in freight becomes more apparent in other economic data in the coming months, we recommend buckling up. More importantly, those ripples will likely make for more big swings in economic data released during July, August, and beyond. Given the short-term distortions in the economic data, we’d also advise against extrapolating based on that data. It’s best to zoom out and take a somewhat longer view until there’s more clarity on trade policy. For now, the true underlying trends likely aren’t as bad nor as good  they currently appear depending on what economic variable you’re looking at. 

Bottom line

The U.S. remains in a ‘muddle-through’ environment—where growth is slowing but not stalling—and we expect the Fed to stay in ‘wait & see’ mode for now. We also anticipate economic data will continue to jostle about due to tariffs—replete with air pockets as demand normalizes following accelerated purchases in the early spring when consumers and businesses attempted to front-run tariffs.