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“Keep your face to the sunshine and you cannot see the shadows.” – Helen Keller

Chart of the Day

Good morning!

Consumers pared spending on everything from travel to dining out but rapidly bought up vehicles ahead of auto-specific tariffs going into effect. (Possibly.)

That’s according to the Federal Reserve’s Beige Book, where five of the Fed’s 12 regional banks reported slight growth in economic activity in their districts. Meanwhile, three noted relatively unchanged activity and the remaining four reported slight to modest declines. 

The Beige Book serves as the central bank’s compilation of economic anecdotes from around the country. While it’s not considered to be one of the more important Fed data pieces released, it’s especially a good read right now because the tariffs-related uncertainty has hurt public sentiment in a way that hasn’t actually shown up in the hard data. So the Beige Book is a good way to gauge when it could filter through in the economy. 

Here’s six takeaways from the latest report:

• Vehicle purchases remain strong in most regions, unlike most other forms of economic activity. In Philadelphia, auto dealers highlighted that sales hit record highs in March. However, since this seems to be “pulling forward” purchases, they don’t expect this strength to continue. In Chicago, when consumers are not spending on cars, they’re buying big ticket items like appliances, computers and other electronics.
• Leisure and business travel are down, mostly hurt by a decline in international visitors to the U.S. Businesses in San Francisco noted that this is an atypical trend for the early spring period. In New York, contacts near the border saw declining visits from Canadians. However, in Boston, the outlook for convention activity remained solid, but that could be because such events are planned months in advance, making them harder to cancel.
• Businesses across the nation conveyed that they expect to pass through additional costs to consumers. The report said many firms have already received notices from suppliers that costs would be increasing. The craziest bit for me came from New York, where businesses reported that some manufacturers and distributors have begun adding surcharges to account for tariffs on shipments already en route. In Atlanta, firms reported that the effects of trade policy are no longer limited to the goods space. 
• With hiring, it’s clear that no one has any visibility, so most employers seem to be in a wait-and-see mode. One staffing contact in Philadelphia highlighted a recent decline in overtime being offered as well as instances of employers telling temporary workers not to come in for a few days because of a lack of work, something the contact had not heard since before the pandemic.
• Layoffs are even messier. Energy executives in Dallas said layoffs are expected this year, noting that the pace might accelerate if oil prices remain close to or fall below $60.
• But manufacturers seem to have it the worst from this economic uncertainty, because they’re unable to see far enough out to make investment decisions. One lumber and wood manufacturer in Atlanta said it had “zero faith in even a six-month forecast.” It also added that the biggest hurdle to expansion and mergers and acquisitions was not knowing how trade policy will settle out. Meanwhile, in Richmond, a military equipment manufacturer reported conditions being “too chaotic” to make any decisions on future investments.

A silver lining is that for the most part, it seems like it is only sentiment that is sour. Since sentiment has been weighing over markets over the past few weeks anyway, to me, it doesn’t seem like the situation has gotten any worse. 

Share your thoughts

How has trade-related uncertainty affected your consumer- or business-related decisions? Click here to send us your response.

Here’s what a reader commented

Question: What other market extremes are you noticing? 

Answer: At the beginning of the year, Conference Board Consumer Confidence Expectations Stock Index reached its highest level ever since 1987, the complete opposite of 2008-09 despair. Along with other factors speculation in leveraged ETFs, valuations 90%, bro culture, gambling at super bowl at record levels …making $ is easy. It would appear Trump burst bubble valuation pendulum will swing no matter the outcome of tariffs to lower level. Gold peaked in the early 80’s, fell 70%, why will bitcoin not behave like gold, which is commodity/currency without tradition and history that has similar volatility?

Catch up with FS Insight

We believe markets are in a better place today compared to last week  as White House moving towards de-escalation. 

Technical

Gains in U.S. equities this week constitute a bullish short-term breakout that should help SPX extend gains up to 5500-5600 before some stalling out (potentially by the end of the month).

Crypto

Head of Crypto Strategy Sean Farrell is on vacation.  

News We’re Following

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Business

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Politics

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• Xi Is Ratcheting Up China’s Pain Threshold for a Long Fight With Trump WSJ
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Overseas

• On TikTok, Chinese Manufacturers Open a New Line in the Trade War NYT

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