This week in Steady Investor, we’re diving into what’s behind the market’s momentum and the risks that could bring it to a halt, including:
The Wild Week for the U.S. Labor Market (and Bureau of Labor Statistics) – The monthly U.S. jobs report is almost always worth watching closely. The data provides a meaningful barometer of activity in the U.S. economy, giving investors important information to weigh. But last week’s report went far beyond this normal application. The first and biggest surprise was the sharp downward revision to previous months’ data, which fundamentally altered investors’ understanding of the U.S. economy’s health and led to the firing of the Bureau of Labor Statistics’ Commissioner. According to the report, the U.S. added 73,000 jobs in July, which was weaker-than-expected but not alarming. It was the revisions to May and June’s payroll figures that caught investors off guard. It was reported that those months produced 258,000 fewer jobs than previously communicated, meaning the U.S. economy only added 3,000 jobs in June. The weakness also showed up elsewhere. The Conference Board’s Employment Trends Index (ETI) fell to its lowest level since October 2023, fewer sectors are adding jobs, average hours worked remain low, and job seekers are spending longer stretches unemployed. At the same time, however, employers aren’t slashing jobs outright. Unemployment claims remain modest, and many businesses appear to be holding on to workers, albeit cautiously. Conflicting signals and a high-profile firing made waves in the financial media, but we think the balanced view shows a U.S. economy that’s ‘muddling through’, not contracting, but also not booming. The upshot is that the weak jobs report increases pressure on the Federal Reserve to cut rates at its next meeting in September. Policymakers will be closely watching whether inflation remains stable and whether this labor market slowdown accelerates in the weeks ahead.1
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Tariff Impacts are Difficult to Track, But Not for the Auto Industry – Price pressures from tariffs have not shown up broadly in the U.S. or global economy, with one key exception: auto. Global carmakers have reportedly racked up nearly $12 billion in losses, their worst performance since the pandemic, as they struggle to adapt to a fast-changing trade and production environment.Companies have so far resisted hiking vehicle prices too aggressively, fearing backlash from cost-sensitive consumers and political blowback. Most are relying on incentives and cost-cutting for now, but it’s not clear how long that can last. GM estimates tariffs will cost it $4 to 5 billion in 2025 and is offsetting that partly by adjusting U.S. production and sourcing.The company is reportedly relocating production of the Chevy Blazer and Equinox from Mexico to the U.S. by 2027, Nissan and Honda are all scaling up U.S. output, and Mercedes-Benz, Hyundai, and Volkswagen are also ramping up U.S. investments (though many of these moves were already in motion due to market growth and consumer demand).Broadly, tariffs appear to be reinforcing a shift already underway: a retreat from globalization in favor of regional manufacturing hubs. Automakers are focusing more on building cars where they sell them, responding to diverging regulatory standards, consumer tastes, and political pressures. Many face high short-term costs and profit pressure in the process.3
Credit Card Debt Soars. A Concern for U.S. Consumers? Americans’ credit card balances climbed again in the second quarter, according to the New York Federal Reserve’s latest household debt report. Total balances rose $27 billion from Q1, reaching $1.21 trillion, matching last year’s record and marking a 2.3% quarterly increase. Delinquencies also remain elevated. Nearly 7% of balances transitioned into delinquency over the past year, as many households may have overextended themselves as inflation surged and savings shrank in recent years.According to Bankrate, 54% of cardholders pay off their cards in full each month, but the remaining 46% do carry debt, and for them, high interest rates can have long-lasting consequences. Indeed, Equifax data shows a growing divergence between financially secure borrowers and more vulnerable ones, especially subprime borrowers, many of whom are younger or have limited credit histories. These households are increasingly squeezed by high interest rates, student loan collections, and everyday costs. We’ve written about this “K-shaped” split in the consumer landscape, but we think it’s important to note that most U.S. households are still holding up just fine. Rising balances and stubborn delinquencies warrant attention, but the financial system is far from the edge.4
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