Weekly Update 04/04/2025: Employment Report Shines for Now
- JNJ receives court setback
- Apple and Visa in talks over credit card
- ISM data shows caution
Economic Reports
In terms of government data releases, the focus for traders and investors this week was on the monthly payrolls and unemployment report released earlier today. Before we discuss that information, there were other data points released that are worth drawing attention to. The Institute of Supply Management (ISM) published the result of its manufacturing and services surveys this week. The manufacturing index for March shrank 1.3 points last month to 49. Any reading below 50 is considered in contraction territory. It was the first such reading below 50 in 2025 after starting the first two months of the year above that key level. The price measure rose to the highest level since June 2022. The survey indicates sentiment has sharply declined thanks to the current administration’s emphasis on tariffs. Seven industries contracted in March including wood products, paper, plastics and furniture. Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee says companies are suffering from “demand confusion” given the economic climate. A maker of computer and electronic products commented in the survey: “Customers are pulling in orders due to anxiety about continued tariffs and pricing pressures.” A machinery company respondent stated: “Business conditions are deteriorating at a fast pace.”
The ISM Services index fell to its lowest level in nine months in March. The reading of 50.8 still qualifies as “expansive” because it is above the 50.0 level, but the hold on that moniker is tenuous at best. A gauge of services employment fell by 7.7 points, the most in nearly five years, to 46.2. The ISM orders index for service providers declined nearly two points to 50.4. Steve Miller, chair of the ISM Services Business Survey Committee, said, “There has been a significant increase this month in the number of respondents reporting cost increases due to tariff activity.” A trader in the wholesaling business commented: “Tariff confusion and the variety of ways that suppliers are responding have had a strong effect on our purchasing decisions this month, causing us to shift spend and in some cases buy in advance of reported tariffs.” A member in public administration said, “Government budget cuts and layoffs are negatively impacting our operations.”
The Job Openings and Labor Turnover Survey (JOLTS) conducted by the Bureau of Labor Statistics showed that the number of available positions fell to 7.57 million in February, down from a revised 7.76 in January. The median estimate in a survey of economists by Bloomberg called for 7.66 million openings. Most of that decline was driven by lower needs in retail trade, financial activities and accommodations and food services. The so-called quits rate, which measures the percentage of people voluntarily leaving their positions, was unchanged at 2%. Many workers are staying put given the growing pessimism about the economic outlook and the fact that changing jobs no longer results in a big pay bump like it did two years ago. The number of vacancies per available worker remained at 1.1x. That set the stage for the unemployment figures from the Labor Department.
The number of nonfarm payrolls rose 228,000 in March, besting the consensus figure of a gain of 140,000. The unemployment rate ticked up to 4.2% from 4.1%. The unemployment rate is based on a survey of households while the payroll figure comes from reports from businesses and governments. Health care, leisure and hospitality and transportation were the main beneficiaries of the jump in paychecks last month. The Bloomberg economics group predicted a rise of 200,000 payrolls placing them firmly at odds with what the consensus was calling for in a survey of other economists. They were much closer to the actual number, citing three factors in particular for their estimate: 1) weather-related rebound due to the return of temperate weather, 2) delayed effects of the Department of Government Efficiency (DOGE) efforts because some initiatives were overturned by judicial rulings and 3) front-running of tariffs which lead to increased activity in the trade and transportation sector. Bloomberg also predicted accurately that the unemployment rate would be 4.2%.
Their precision is notable and heightens their voice in what they predict next will happen. Federal government payrolls posted the first back-to-back decline since 2022. While some DOGE efforts were halted, others were merely delayed, and there are sure to be more to come as Bloomberg and some forecasters predict there will be up to half a million jobs lost by year end as federal cuts spread to government contractors, universities, nonprofits and other adjacent sectors. Stellantis, which owns such brands as Ram and Chrysler, said it will immediately furlough 900 workers across various sites due to the tariff announcements. In other words, Bloomberg believes that the bump in March was due to temporary factors making the report just out this morning feel outdated. New entrants that were unable to find work rose to an eight-year high. The share of people holding multiple jobs climbed to the highest level since 2009. The participation rate, which measures the share of the population that is working or looking for work, ticked higher to 62.5% in March, but that was driven mainly by those under the age of 24. The prime-age workers in the 25-54 range saw its rate fall to the lowest level in over a year.
Tariffs
U.S. President Donald Trump unveiled the long awaited levies in a ceremony in the White House Rose Garden on Wednesday afternoon. Trump stated: “This is one of the most important days in America’s history. It’s our declaration of economic independence.” The new tariffs will increase the average U.S. rate above 20%. When combined with tariffs from previous administrations, China now faces total levies of 65%-70%. Vietnam faces a new 46% tariff, and the European Union must wrestle with a novel 20% duty. There are plenty of online resources to find the specific level now applied to each country, so readers are welcome to do that on their own, but the main takeaway is that the markets took a negative interpretation of the plan rephrasing ‘Liberation Day’ to ‘Obliteration Day’. Tariffs are essentially taxes paid by corporations which either pass along the higher toll to consumers or suffer lower margins if they pay it themselves. Just as markets responded favorably to lowered tax rates back in 2018, they are reacting in the opposite direction now that levels are rising. The levies are so broad-based that few industries will be spared, and that says nothing of retaliation by trading partners that could raise the rancor. The main reaction to higher taxes, by individuals or corporations, is avoidance which means that a path towards lower economic activity is becoming the base case. With the odds of a recession increasing, investors not unexpectedly retreat to the safety of cash or fixed income options. That is why we emphasize having balanced portfolios for clients because bonds serve as a volatility-reducer when the growth portion of portfolios—namely, equities—face considerable hurdles. We will investigate this topic in more depth as part of our commentary which is included in every quarterly report which should be out in the coming weeks. Stay tuned!
The Fed
The hard data relates to tabulated numbers, and today’s employment headline shows that the labor market is solid. Soft data, which refers to survey data and sentiment indicators, shows a totally different picture. This leaves the markets in a tough spot, and the challenges the Federal Reserve faces have become larger. Ten-year U.S. Treasury yields fell below 4% this morning which is exactly the opposite one might expect with such a strong employment report. More people with more paychecks usually means more spending and thus higher inflation, which gets translated into higher yields. But the overwhelming sentiment among traders is the introduction of a new set of tariffs will induce an economic slowdown at best and potentially a recession at worst. That pushed longer-term yields lower. The chance of a 25 basis point (0.25%) cut at the Fed’s June 18 meeting went from 65% on Tuesday to 107.3% this morning, essentially pricing a chance of a greater than 25 basis point reduction. With China announcing a 34% tariff on all U.S. imports and restrictions on the exports of seven types of rare earth minerals (samarium, used in optical lasers and powerful magnets; gadolinium, used as a contrast agent for MRI scans; terbium, used in display devices; dysprosium, used in magnets for wind turbines and electric vehicles; lutetium, used in oil refineries; scandium, used in aerospace and yttrium, used in radar technology), the back-and-forth is poised to go into overdrive. That means the prospect of higher prices must play a role in Fed Chairman Powell’s path forward. With the Fed having a price and employment mandate to satisfy, the choice of future rate cuts is not simple, but it never is. The next Federal Open Market Committee meeting is scheduled for May 7. That will be plenty of time to receive the next consumer and producer price data, numerous initial weekly jobless claims and another monthly employment report before making a decision. The futures markets are predicting that the Fed will still be on hold in early May, but with news flying fast and furious, that could change between now and then.
Company Events
SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Steigerwald, Gordon & Koch, Inc. [“SGK”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from SGK. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SGK is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the SGK’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.sgkwealthadvisors.com. Please Note: SGK does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SGK’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a SGK client, please contact SGK, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.