Meanwhile, the United States’ own equally busy economic calendar lays ahead as it heads towards potentially game changing trade negotiations and another batch of key labor market reports. In addition, President Donald Trump recently announced a three-month delay on reciprocal tariffs, which could make the bilateral trade relations more manageable and fruitful. Throughout all of this, the White House has promised to negotiate 90 different trade deals in 90 days. Yet, even with these efforts optimism in the manufacturing sector is still low, the realities of rebuilding America’s industrial core are complex and troubling.
This week in trade marks the final chapter of exchanges as the US-UK trade deal goes into effect. At the moment, it’s the only deal that Washington has inked. This deal marks a significant breakthrough in post-Brexit trade relations. It plays out against the backdrop of an increasingly tense relationship with China, where a loose truce still holds. With more economic indicators to come, stakeholders will be watching with bated breath to see what it means for domestic and international markets.
Trade Relations and Economic Strategies
Just last week, President Trump postponed implementation of reciprocal tariffs, marking a major strategic turn towards reducing market tensions and protecting investments on the global stage. Such a delay could allow for more time for further negotiations, especially as the administration aims for the largest possible consensus. Brown likes to refer to this administration’s ambitious goal — sealing 90 trade deals in the first 90 days. This urgency is intended to bolster US trade relations and boost economic recovery.
The response from the manufacturing sector has been lukewarm, at best. Even analysts admit that the administration’s strategies have yet to show a measurable increase in manufacturing activity. Negative externalities are weighing down the sector. Persistent global trade tensions and supply chain disruptions have led to increasing concerns over its outlook.
At the same time, as implementation of the US-UK trade deal gets underway, it presents another exciting route to economic engagement. Almost all observers have greeted this settlement, both by its terms and its implications, as a big victory. We’ll need to wait and see how effectively it spurs growth versus possible deals with other large trading partners (China, EU). The singular nature of this agreement begs the question — what does this mean for the broader strategy going forward.
Labor Market Indicators and Economic Projections
While the pattern of trade has clearly become more complicated, the US labor market’s metrics are singing a contradictory tune. The Congressional Budget Office (CBO) expects an unprecedented $3.3 trillion increase in the US deficit. This shocking estimate understandably leads to great concern about fiscal sustainability and its potential impact on job creation. Given that unemployment rates are already high, these projections would invite increased scrutiny by policymakers.
Recent data from the ISM Services PMI reveal a near-zero contraction across the services sector. In May, the index dropped below the vital 50-point mark, coming in at 49.9. This drop is worrying for the momentum of economic growth, though some economists are forecasting a modest rebound in June. A rebound in the services sector is critical for sustaining overall economic health as it represents a substantial portion of GDP.
At the same time, job growth is front and center for the Federal Reserve. The Fed is closely monitoring any signs of rising unemployment, particularly as Canada anticipates an uptick in its own unemployment rate from 4.2% to 4.3%. In this vein, the Fed’s vigilance is warranted, as concerns about cascading effects on the US labor market are valid.
Upcoming Reports and Market Reactions
Looking ahead, investors are preparing for a deluge of labor market data, capped off by the widely-followed non-farm payroll (NFP) report. Due to the Fourth of July holiday, this report will be published on a shifted day. This new paradigm adds a layer of unpredictability to how the market will react. ADP’s employment data has undershot for the last two months. It would be a distinct advantage for gaining high-quality leading indicators of labor market conditions right in advance of an NFP release.
How the labor market continues to perform will be a key determinant in how widespread optimism about the economy’s resilience will be. Many analysts believe that any continued weakness in job creation could prompt further action from policymakers, including adjustments to monetary policy. This uncertainty only compounds a more inflamed economic environment, as new data continues to roll in.