by Professor Jeremy J. Siegel, Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania
The employment report was uniformly strong except for one component: the average hours worked per week fell to the lowest level since the pandemic, which may be weather related. Although headline numbers were slightly weaker than consensus, the past two months of revisions more than made up for it. And the unemployment rate fell to 4.0%, indicating a slight tightening of the labor market. Furthermore, wage gains exceeded expectations, although much of it was due to revisions of earlier data. We have noted often that this could reflect higher productivity, nevertheless it adds to the inflationary bias of the whole report. In addition, the one-year inflationary expectations jumped by one percentage point, one of the largest on record for a month-to-month change, undoubtedly due to the fear of Trump tariffs. A disappointing development is the drop in the University of Michigan’s consumer confidence number, perhaps also related to the fear of Trump’s tariffs.
Naturally the 10-year yields jumped on the employment news, but still ended a hair below 4.5%. The fact that yields have held below 4.5% has supported the equity market. And, although stocks fell Friday, the indexes are within a couple percentage points of their all-time high.
Over the weekend Trump announced 25% tariffs on steel and aluminum, although stocks sloughed it off in early Monday trading. Many other countries have tariffs on steel and Trump can use this as a negotiating tool. Domestic steel producers did jump on the news.
Next week we have the PPI and CPI reports, and I expect them to come in line with expectations. The impact of these reports may be muted since we still have a month’s worth of data before the next Fed meeting. Trump’s tariffs are now higher on the mind of investors than most of the economic data and will likely be the most important mover of stocks until the last set of data before the March meeting.
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