Until this weekend, the first week of February was setting up as a busy week of economic reports. And the numbers were expected to be solid, perhaps not flashy, with a reasonably confident outlook for the rest of the year.
They may yet prove to be, but the Trump Administration has set about to raise economic tensions both foreign and domestic.
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The administration announced tariffs of 25% on goods imported from Canada and Mexico, along with 10% new tariffs on goods from China. The tariffs take effect Tuesday.
Jobs reports including unemployment are crucial to what the Fed does next to rates
Mexico and Canada plan to retaliate. It's not clear what China will do yet, but trade tensions are skyrocketing. Moreover, Trump wants to raise tariffs on all imported goods. So there may be more to come.
Related: Fed officials' frank words reset interest rate forecasts
This week's economic data, especially the monthly jobs report, which is released on the first Friday of the month, can move markets, but it isn't guaranteed.
In 2024, Fed interest rate cuts were justified because rising unemployment outweighed inflation risks. That pivot resulted in three reductions to the Fed Funds Rate, totaling 1%.
The signal sent by the jobs report to markets can also be wrong. A weaker-than-expected jobs report on Aug. 2, 2024, caused stocks to slump for much of the month. Nvidia (NVDA) shares fell 9.4% in a week.
But investors concluded the economy wasn't slumping, and things picked up, including Nvidia's share price, as the Nov. 5 election approached. Stocks went on to all-time highs, and the Fed has paused its rate-cutting plans.
Regardless, we'll get a flurry of jobs data this week that could reshape market outlooks for more Fed interest rate cuts. In addition to the BLS jobs report Friday, We'll also get:
- The December Job Openings and Labor Turnover Survey (JOLTS) will be on Tuesday. In November, there were 8.1 million open jobs, down 833,000 from the year before.
- The ADP jobs report, on Wednesday. Last time, ADP said 122,000 jobs were created.
- Unemployment claims on Thursday. There were 207,000 jobless claims in the prior week.
So, there's a lot going on. Here's what else to watch for this week.
Monday: ISM Manufacturing Index for January, construction spending for December, and vehicle sales.
Related: Palantir, Amazon could rock stocks this week
The ISM Manufacturing Index posits that a reading above 50 means manufacturing is growing. In fact, the index, published by the Institute for Supply Management, has been sliding for some months and stuck in the 49 region for a while. The consensus forecast is for about 49.3. Not awful, not great. Few economic forecasts see it going above 50.
Construction, however, is seen rising 0.2% (maybe 0.3%, says Wells Fargo), reflecting some economic confidence.
Vehicle sales in January are expected to come in at an annualized rate of 16.2 million units, down slightly from December's 16.8 million.
Tuesday: Factory orders for December from the Commerce Department.
The consensus estimate is a gain of 0.5%. Wells Fargo sees a slight decline, perhaps because of the hangover from last fall's hurricanes. Factory orders are a forward-looking indicator as they hint at demand ahead for manufacturing goods. If rising, they hint at future production increases and more business.
Wednesday: Trade deficit report and the ISM Services report. The trade report measures the value of exports out of and imports into the United States.
The consensus is for an $80 billion deficit. It was $78 billion in November. However, the report does not take into account the billions of dollars sent overseas to finance new U.S. business investments. The ISM Services Index attempts to measure the expected demand for services by business. It has been rising for six straight months.
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Thursday: Jobless claims and productivity, mentioned above. This should come in at around 200,000. It's ranged between 200,000 and 250,000 consistently since early 2022. Productivity has risen roughly 2% a year for the last two years.
Friday: The jobs report: unemployment rate, gains in payroll employment, and average work week.
This is the most important economic report of the month. Payroll employment is expected to be 150,000, down from December's 256,000 number.
The latter was much bigger than expected and may be revised lower in the new report.
The unemployment rate is expected to be 4.1%, unchanged from December. The numbers are revised as new data comes in. The work week has averaged about 34 hours, with factory workers working full 40-hour weeks.
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