Trade swings and other distortions rippling through economic data will likely linger longer

Trend watch

Both air passenger traffic and hotel occupancy are continuing their gradual descent after peaking in the week after the 4^th of July. If it follows the typical seasonal pattern, both metrics should stabilize in mid-September.

Meanwhile, there’s been another surge in-bound freight during July. Container volumes at 5 top U.S. ports (Los Angeles, Long Beach, Savannah, SeaTac, Virginia/Norfolk) surged 16.8% in July and are up 4.6% year-to-date compared to 2024.

That was paired with a pop in rail traffic as intermodal freight carloads jumped 6.4% during July. Based on the weekly data through the third week of August, carloads are down slightly from July. And as we noted here last week, scheduled freight bookings from China to the United States through early August were also sagging, suggesting that freight volumes for August and September are likely to be softer than the strength witnessed in July. 

Our take

This week we observed another wave of important economic reports. Overall, the tone of the incoming information remained mixed, although some of the softness within the high-frequency travel statistics is related to the seasonality we mentioned above.

Housing remains in a bad neighborhood, with new and pending existing home sales both down for July. This occurred despite a recent backslide in prices, though prices remain dramatically above pre-COVID levels. Likewise, manufacturing remains sluggish. It’s important to note that both housing and manufacturing have been in the doldrums for the better part of two years.

Additionally, the last of the three major inflation gauges, and the Federal Reserve's (Fed) favorite – the price index of personal consumption expenditures (PCE) – also showed signs of tariff pressures.

Yet, personal income and spending figures (slide 12) illustrate the remarkable resilience of the U.S. economy. We’ve heard anecdotal reports of stronger new auto sales in August. This is likely the combination of shifting tax incentives. The first is the new tax break for purchasing vehicles assembled in the U.S. for low- and middle-income Americans that was part of the recently enacted tax package. The second is the scramble to qualify for federal tax credits for both new and used electric vehicles (EV), which are set to expire on September 30^th.

Then there’s the aforementioned ripple within freight volumes, which have swung wildly in the past several months due to on-again/off-again tariffs. This is particularly significant for freight shipping from China, which is our third-largest trading partner and accounts for about one-third of imported container volumes. Moreover, the tentacles of freight radiate throughout the economy – from trucking, warehousing, and support services to restaurants and lodging.

Alas, all these point towards continued distortion in the economic numbers. Notably, these shifts are likely to lead to considerable variations in economic data released in the coming months and beyond.

Given the short-term distortions in the economic data, we reiterate our recommendation to avoid sweeping conclusions based solely on a single series or data point, which largely reflect a moment in time. It is prudent to maintain a broader perspective and adopt a longer-term outlook until trade policies become clearer. For the time being, the true underlying trends may not be as negative or positive as they appear, depending on the specific economic variable involved.

Lastly, we’ll keep a keen eye on the August employment data released next week and the annual benchmark revisions for payrolls, which will be released during the following week. Both will likely get extra scrutiny by markets to discern if the weakness seen in May and June was isolated and temporary.

Bottom line

The U.S. economy remains in a muddle-through environment. Economic data will continue to jostle due to air pockets as demand normalizes following accelerated purchases by consumers and businesses attempting to front-run tariffs. While we don’t believe that tariffs will be catastrophic for the U.S. economically, they will certainly continue to distort behaviors and, in turn, the economic data.