The stock market could be helped by tariff developments this week. The latest news stories suggest Trump's threat of tariffs on Canada and Mexico is meant to persuade them to impose tariffs on China. Mexico is said to have agreed to do so and could announce it on Tuesday. It remains to be seen whether Canada will do so, as well. Presumably, the US will not impose tariffs on them if they, in fact, follow through. This would be a positive for stocks and fit with the historical tendency for them to move up in March, more so in April.
At the same time, the markets should continue to be concerned that the tariffs will lead to slower economic growth, if not recession, and higher inflation. These effects may not happen immediately. As a result, evidence to the contrary could be dismissed for being too soon to show the effects. And, evidence that seems to support these concerns could spark a sell-off.
From this perspective, this week's key US economic data should have little impact on the stock market if consensus estimates print. The February Employment Report and Mfg ISM are not expected to validate the market's fears, and thus may be discounted.
Consensus sees a modest +133k m/m increase in Nonfarm Payrolls, not much different from the +143k in January, a steady 4.0% Unemployment Rate, and an uptick in the Nonfarm Workweek (weather-related rebound). Such prints would not indicate recession. The market may focus on whether DOGE has in fact reduced Federal government jobs. The jump in Initial Claims to an above-trend level in the latest week may have reflected these layoffs. However, the Claims data were for a week after the Payroll survey week. Also, the week contained a holiday, which raises the possibility that seasonal adjustment may have exaggerated the increase. The higher level of Claims needs to be confirmed in this week's release to be meaningful.
Consensus also expects a slowdown in Average Hourly Earnings (AHE) to 0.3% from 0.5% in January. This would be good news for the inflation outlook as it would be below the prior 0.4% trend. The market may discount a low print as not yet reflecting attempts by labor to counter the inflationary effects of the tariffs.
Consensus also looks for the February Mfg ISM to stay high, edging down to 50.8 from 50.9 in January. The Non-Mfg ISM is expected to rise to 53.0 from 52.8. Although still relatively low, an uptick could be important after the Market PMIs for both the US and Europe showed a sharp weakening in Service Sectors in February. In Q424, the Mfg ISM averaged 48.1 and the Non-Mfg ISM averaged 54.1.
The Atlanta Fed model dropped its latest estimate of Q125 Real GDP to -1.5%, feeding fears of recession. This is an early forecast based on little data, however. In particular, the decline resulted from a large decrease in Net Exports due to a jump in imports of industrial supplies. This jump may have been in anticipation of tariffs. If so, much of them most likely was held in inventories. This did not show up in January inventory data, however, but could appear in data for February or March. There is often a timing difference between the Trade Deficit and Inventory surveys. So, the Atlanta Fed model's estimate should probably be viewed with caution.