Payroll gains “Trumped” by trade war news

We suspected that a stronger than expected jobs report for March would and should be quickly dismissed as the last pre-trade war print. Indeed, the stronger nonfarm payrolls number was and will be overshadowed by the continuing stream of trade news, starting with the “Liberation Day” on Wednesday and China’s retaliation and Trump’s doubling down today. The higher-than-expected print was blunted by downward revisions to prior months and does not change the overall trajectory of the labor force – it is steady, but labor demand is very slowly softening. This print should and will likely be discounted as the last of the pre-tariff reports as the new trade war changes the paradigm. Directionally there is not much debate about the effects of tariffs in the short run – growth will slow and inflation and unemployment will rise. The questions center around the a) the retaliatory measures taken by trading partners and b) the reaction function of the Fed. On the latter, Powell speaks later today on the economic forecast and will hopefully shed some light on if the Fed still sees tariffs as transitory.