Monthly Market Commentary: March 2025
February's employment figures highlight an economy still adding jobs but showing signs of softening. Employers created 151,000 new positions, particularly in the healthcare, finance, transportation, and manufacturing sectors1. Wage growth continues to trend upward, signaling employees may still have some negotiating power, despite the job growth slowdown1. However, the unemployment rate edged up to 4.1%, reflecting shrinking federal employment, rising part-time work due to economic necessity, and a record 8.9 million Americans holding multiple jobs1. Government policies, notably spending cuts and new tariffs, are beginning to negatively impact employment, as evidenced by the largest monthly decline in federal jobs since June 20221. These shifts may further slow job creation and increase unemployment in the coming months.
Amid these growing concerns, the University of Michigan's preliminary consumer sentiment index for March 2025 dropped to 57.9 from 64.7 in February, marking the lowest level since November 20222. This decline reflects widespread consumer apprehension about economic policies and rising inflation. Short-term inflation expectations increased to 4.9%, while long-term expectations surged to 3.9%, the highest since 1993 2. The sentiment decline was observed across various demographics and political affiliations, with individuals across all political affiliations reporting significant drops in their economic outlooks 2. Economists caution that this growing pessimism could dampen consumer spending, potentially hindering economic growth in the coming months. While a moderate reduction in consumer spending can help alleviate inflationary pressures, excessive cutbacks may lead to deflation and economic stagnation.
There was some good news in the latest economic data, as February's CPI report showed inflation cooling3, reinforcing expectations that the Federal Reserve will maintain its current policy stance. Headline inflation slowed to 0.2% in February from 0.5% in January, bringing the annual rate to 2.8% 3. Core CPI, which excludes food and energy, rose 0.2%, with shelter costs remaining a key contributor 3. The decline in prices for cars and gas contributed to the slowdown, though egg prices surged 10.4% due to supply disruptions 3. However, the relief may be short-lived, as economists warn that escalating trade tensions could drive up costs across a range of goods, potentially straining consumers and the broader economy in the months ahead.
The bottom line: The US economy is navigating a challenging period marked by heightened uncertainty, market volatility, and cautious consumer behavior. Erratic tariff policies, including unpredictable 25% tariffs on imports from Canada and Mexico, have created significant forecasting and sentiment difficulties, affecting expectations for economic growth, inflation, and interest rates. These conditions have increased recession risks and contributed to substantial market selloffs, with the S&P 500 entering correction territory on March 13, 2025, after declining more than 10% from its February 19 peak. Volatility may be likely to persist until tariff policy becomes clearer, highlighting the importance of remaining calm and cautious amid ongoing uncertainty.
Sources:
1. Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
2. University of Michigan Surveys of Consumers, http://www.sca.isr.umich.edu
3. Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
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