Economic Data Tracker – 
Uncertainty overhang is starting to appear as businesses try to front run possible tariffs

Trend watch

Although spring break season began two weeks ago, the last week of February is traditional a soft spot in the calendar. Weekly air passenger counts fell 2.4% in the past week to 16.3 million, though are still running ahead of 2024 and 2019 on a year-to-date basis. Hotel occupancy climbed to 60.3%, a 14-week high, but they are on a one-week lag. 

Our take

While we have repeatedly mentioned that markets don’t seem to believe that tariffs will be enacted, or that if they are – they would be very temporary, the overhang due to possible tariffs is beginning to appear in the economic data.

The Conference Board’s Consumer Confidence Index in February fell to an eight-month low, while inflation expectations rose to their highest level since May 2023. That’s on top of similar readings for February within the University of Michigan’s Consumer Sentiment Index.

More importantly, as we show on slide 8, businesses and consumers appear to be attempting to front run tariffs as U.S. imports in January jumped almost 12% month over month. That plunged the net trade balance to -$153.3 billion, an all-time record.

Not to overstate the importance, but the net trade balance subtracts from gross domestic product (GDP). Ultimately, if that trend continues – and it’s a big IF – it would likely tip first quarter 2025 GDP negative. That’s the bad news.

The good news is that those imports – which were mostly industrial supplies, including petroleum products, machinery, and tools, and consumer goods – will eventually be sold out of inventories. That means the negative hit to economic growth (GDP) would be reversed in coming quarters. In other words, it would be a temporary shifting of growth between quarters.

With respect to tariffs, President Trump has repeatedly reiterated that the delayed 25% increase on Canada and Mexico would begin next week (March 4^th). We’d expect nothing less since he’d lose credibility if he didn’t press on with tariffs as planned, even if a last-minute deal was in the offing.

That said, we maintain our view that President Trump is attempting to extract concessions from Canada and Mexico, which means there’s a deal to be had. Moreover, Canada and Mexico have openly expressed willingness to cooperate with the U.S., whether on security or trade, especially in relation to closing so-called backdoors for Chinese imports to enter North America.

Accordingly, uncertainty for the economy and volatility in markets are largely due to the threat of tariffs, which have been delayed but not permanently removed. Moreover, the stickiness of prices and inflation matches what we anticipated in our annual outlook, where we outlined steady growth on shifting ground, which remains intact at present.

Ultimately, we believe that the U.S. economy should be able to power through the uncertainty. However, the game of chicken makes for a much bumpier path forward, particularly in the near term, as the threat of tariffs remains an overhang – for consumers, businesses, investors, policymakers (including the Federal Reserve), trading partners, etc. 

Bottom line

The U.S. economy remains resilient, and we believe solid growth will endure; however, it’s in a holding pattern awaiting resolution on the tariffs. Additionally, uncertainty regarding the impacts from expected policy changes by the new presidential administration and Congress remain a further headwind for the economy 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.