Economic Briefing
Tariff Update
At the time of writing, the first trade deal was yet to be announced. Rumors suggested that any number of countries might be close to announcing a tentative agreement (an agreement in principle or signed letter of agreement) and those could include India, South Korea, Japan, Mexico, and others. Dozens of countries were in the process of reviewing current trade policy, recent trade trends, and US initial assessments of the gaps between trading partners to understand what might be on the table during negotiations.
Since these trade agreements would normally take 1-3 years, trying to complete comprehensive agreements in 90 days is a herculean task. Many countries offered to drop their tariff rates against US products being imported into those countries, but the non-tariff trade barriers were more complex and were likely doing more harm to US trade deficits. And it is those agreements that will likely increase US export activity to many of those countries when the agreements are finally signed.
The US and China had not officially started negotiations, and it is the US/China trade war that carries the greatest risk for US supply chains. Many analysts expect final tariffs to be effective in the 8-12% range, which will still carry some implications for global trade. Shifting of sourcing was already somewhat evident in manufacturing data; India product demand surged in April in the wake of tariffs with much of that coming from foreign export demand (the US being one of those trade partners seeing an increase in import demand from India).
Q1 GDP Contracts in Theory, Q2 Starts at 1.1%
The first quarter saw US GDP contracting at 0.3%, a marginal rate. This was the first printing of GDP for the quarter, and there will be several revisions to this data in the months to come (and it could easily adjust up or down when final figures are added). There were underlying issues, however, that may change the GDP outlook and put some emphasis on the risk of recession.
Imports of gold skewed import data in Q1. Any time the US runs a trade deficit, it pulls away from GDP. And in the case of this first quarter report, gold imports pulled nearly 4 percentage points away from GDP.
Consumer spending, corporate spending, and private residential investment were still positive, although all of them were marginally increasing in the quarter. Inventory building activity was positive and government spending came in sluggishly (as one might expect with Department of Government Efficiency efforts temporarily pausing many payments).
Q2 GDP has started out with an estimated reading of 1.1%. This will move significantly throughout the month, but many economic measures were still positive through April, creating a good start to the quarter. In order for recession to be a factor, it would require two consecutive quarters of negative GDP and more weakness than is currently seen in the labor market.
Manufacturing Reports Sending Mixed Signals
The wave of monthly manufacturing reports sent different messages to the market. The US Manufacturing PMI reports from S&P Global showed manufacturing unchanged month-over-month at 50.2 (a reading over 50 signals expansion and growth in the sector). New orders were reportedly weaker, but they did not collapse dramatically as many had expected. Manufacturers are still uncertain about the look ahead, but many US firms were optimistic as domestic order books appeared to be gaining some momentum from tariff pressures on other firms.
But Mexico and Canada were much weaker, and the tariff risks were certainly showing up in that data. Mexico’s PMI plummeted, falling to 44.8 in April, down from 46.5 in March. New orders fell at the fastest pace since February of 2021, and many orders have been cancelled or postponed due to tariff risk.
Canada was only slightly better at 45.3, down from 46.3 in the prior month. New order inflow was the weakest since May of 2020 (just after the lockdown period during COVID). New Canadian Prime Minister Carney will be meeting with the US to start trade talks in the early weeks of May, and there could be some public statements released thereafter that help improve sentiment between the countries.
Inside This Edition
Q1 GDP Contracts in Theory, Q2 Starts at 1.1%
The first quarter saw US GDP contracting at 0.3%, a marginal rate. This was the first printing of GDP for the quarter, and there will be several revisions to this data in the months to come (and it could easily adjust up or down when final figures are added).
Manufacturing Reports Sending Mixed Signals
The wave of monthly manufacturing reports sent different messages to the market. The US Manufacturing PMI reports from S&P Global showed manufacturing unchanged month-over-month at 50.2 (a reading over 50 signals expansion and growth in the sector).
Trucking Signals Stable in April
Trucking activity was mixed in April. Dat Trendlines showed that there was still good demand as a 17% Y/Y increase in load demand hit a 21.8% decrease in truck postings.
Global Container Volumes Dive
The trade war between the US and China has severely impacted new orders in the region. Some estimates show that global bookings of container shipping capacity at the end of April could be down as much as 54% from levels seen a year ago.
Transportation Briefing
Trucking Signals Stable in April
Trucking activity was mixed in April. Dat Trendlines showed that there was still good demand as a 17% Y/Y increase in load demand hit a 21.8% decrease in truck postings. The net result was a 26% increase in the number of loads looking for trucks (load-to-truck-ratio) but yielding only a 0.5% increase in freight rates. Fuel surcharges were also down sharply by 8% as diesel prices remain weaker.
LTL prices as reported by the Producer Price Index (PPI) were still near all-time highs, but they slumped slightly by 0.1% M/M despite being higher by 5.5% Y/Y. Capacity was reportedly available in April, but companies were keeping total capacity somewhat measured amid uncertainty for Q2 and the period ahead.
The Truckload PPI was 2% higher month-over-month and was sharply higher by 5.2% through March.
Again, many analysts are uncertain regarding the role of pulled-forward freight volumes heading into the critical April reciprocal tariff period. Many shippers were wary of the April 2nd deadline, and they ordered products to arrive ahead of schedule. It appears that inventories are still balanced based on the latest information from the Institute for Supply Management. That signals that perhaps inventory building activity (although robust), may not have been enough to risk inventory overstocks once again. Consumption, as mentioned, is still strong in both consumer and B2B markets, and sell-through is still possible.
Global Container Volumes Dive
The trade war between the US and China has severely impacted new orders in the region. Some estimates show that global bookings of container shipping capacity at the end of April could be down as much as 54% from levels seen a year ago. Spot maritime container rates as reported by Drewry would confirm this. Container spot prices between Shanghai and LA are down 23% Y/Y and between Shanghai and New York are down 20%.
Trade lanes between Asia and Europe were also impacts, rates were down on average @26%.
None of this downturn in activity is due to duties being imposed on Chinese-made ships docking at US ports. Those impacts will not be felt until late in 2025, unless a trade agreement can ratchet-down trade tensions and see the US back off on that order. Under the order, there is a 180-day grace period which means it will start October 14, 2025. For Chinese maritime firms operating Chinese-built ships, there will be a $50 per net ton duty imposed on the first port of entry and up to five times a year per vessel. The fees will graduate by $30 annually to a total of $140 a net ton by 2028. Non-Chinese foreign firms operating Chinese-built ships will face an $18 per net ton (about $120 per discharged container) rising incrementally by $33 per net ton. There are many other aspects of the policy and it is still subject to change between now and October. If the order stays in place, it will have a dramatic impact on pre-order volumes leading up to October and then create disruptions in trade flows after as companies shift assets into different trade lanes.
