Inflation, Trade Worries Spark Volatility
The following preview is an excerpt from the Q2 2018 edition of Transwestern Insights available here: LINK
Despite growing consensus that the U.S. is experiencing a labor shortage, job growth accelerated into the opening months of 2018. Net additions surged to 326,000 in February—the highest monthly figure since July 2016—before cooling to 103,000 in March. Over the 12 months ending March 2018, the U.S. economy added 2.3 million new jobs.
Annualized wage growth finally strengthened during the first quarter to just shy of 3%, after holding between 2% and 3% for most of 2017. The climb in wages stoked investor fears that a more bullish Fed will respond with more frequent rate hikes. However, we believe that the Fed will follow through with its plan for just three increases this year.
New concerns have risen, however. The Trump administration has taken an increasingly hardline stance on trade, introducing new tariffs on several imported goods including steel and aluminum.
The new tariffs, particularly for steel, greatly elevate the risk of a trade war with other industrialized nations. The European Union and China have already threatened retaliatory tariffs of their own. Ultimately, a trade war could severely hamper net exports, while at the same time raising prices for consumer and capital goods.