U.S. Economy Shows Resilience

Jeffrey Roach (00:03):

I'm Jeffrey Roach, Chief Economist for LPL Financial with three key charts to explain the current macro landscape. First, the U.S. dollar is still majority global reserve currency. When we think of U.S. Exceptionalism, we should remember that as of the end of last year, the U.S. dollar, roughly 58% of global currency reserves, the dollars piece of the currency reserve pie has shrunk from the 70% share 25 years ago. So how should we explain this trend, and is it indicative of the U.S. dollar losing dominance? Well, foremost, this is a trend among the big four, which includes the yen, the euro, and the British pound. So this is more about diversifying a portfolio and about the maturation of currencies other than the big four. So it's not necessarily indicative of the dollar losing dominance. Second, the latest GDP report is more noise than signal. The Q1 2025 growth estimate is eerily like Q1 2022 during the height of the supply chain problems.

Jeffrey Roach (01:06):

I don't think this report provides much clarity to the growth trajectory. The economy shrank in Q1 as net trade subtracted from growth, a spike in imported medical consumer goods, computers, and peripherals, subtracted almost five percentage points from Q1 economic growth. Consumer spending on services, especially healthcare, grew 2.4% in Q1 as households remained resilient. No recession here. Businesses pulled forward inventories in anticipation of unknown trade policy, but real final sales to domestic purchasers rose 2.3% annualized indicating the economy is holding steady outside of the trade uncertainty. Now, a successful resolution to global trade policy would likely remove most of the volatility and uncertainty currently experienced by businesses and consumers. Moreover, the consumer is too strong to speculate the economy has dipped into recession. Outside of the trade induced shocks to business inventory management, the economy is indeed holding up. Third, weaker job reports will come soon.

Jeffrey Roach (02:14):

Businesses added 177,000 to payrolls in April after adding a revised 185,000 the previous month. Now remember, downward revisions are common during periods of slowing growth. March estimates were revised down by 43,000. The three-month average gain is 155,000, higher than what would be considered a neutral run rate, and the percent of long-term unemployed rose to 23.5%. That's potentially reversing a pre-pandemic trend here. We will probably see some weaker payroll reports in the coming months as the American Staffing Association is reporting some weakness. The bottom line here is this: despite the ongoing uncertainty with global trade, businesses were still adding to their payrolls in April. The economy has stable demand for workers, especially in the healthcare sector and financial services. Now, if the labor market holds up and the Trump administration walks back the most egregious tariffs, the economy could indeed skirt a deep recession. That's all for now. If you want more insights on global market trends, follow us on social media and take care.