Subject: Control Panel: Increasing risk of stagflation
This is a cross-post from METAR on the TMF boards. Click on the link for active links in the post that are below my sign-off.

https://discussion.fool.com/t/...

Many actions of the new Trump administration have dramatically increased economic risk and uncertainty. These include deporting undocumented workers and beginning a trade war on important trading partners who are bound to retaliate.
nytimes.com – 9 Mar 25
Undocumented Workers, Fearing Deportation, Are Staying Home

Fearing roundups, many immigrants are staying home. Construction, agriculture, senior care and hospitality employers say labor shortages will worsen.
A Chill Sets In for Undocumented Workers, and Those Who Hire Them

Fearing roundups, many immigrants are staying home. Construction, agriculture, senior care and hospitality employers say labor shortages will worsen.
By Rebecca Davis O’Brien and Miriam Jordan, The New York Times, March 9, 2025

…
Fear has gripped America’s undocumented workers. Many are staying home.

The impact is being felt not only in immigrant homes and communities, but also in the industries that rely on immigrants as a source of willing and inexpensive labor, including residential construction, agriculture, senior care and hospitality. American consumers will soon feel the pain.

“Businesses across industries know what comes next when their work force disappears — restaurants, coffee shops and grocery stores struggling to stay open, food prices soaring, and everyday Americans demanding action,” said Rebecca Shi, chief executive of the American Business Immigration Coalition.

An estimated 20 percent of the U.S. labor force is foreign born, and millions of immigrant workers lack legal immigration status… In construction, up to 19 percent of all workers are undocumented…low-skilled labor for poultry plants, warehouses and manufacturing…farm labor…long-term care for older adults and people with disabilities… [end quote]

The trade war will hit essential levels of the economy from energy to consumer goods to construction and manufacturing inputs. The war on immigrants will hit many essential jobs that American workers won’t do at all, certainly not for the low wages accepted by immigrants.

This will slow the economy and raise costs at the same time. Stagflation.

I wrote earlier this week about an economic cold front approaching. This post has several comments and links so I don’t have to post them again.

I usually wait to post economic indicators on my Sunday Control Panel post. But these seem too timely to wait. This reminds me of the time my family was out fishing and my dad raced for harbor after seeing an approaching cold front. The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.8 percent on March 3, down from -1.5 percent on February 28. After this morning’s releases from the US Census Bureau and the Institute…

The Fear & Greed Index is in Extreme Fear. The risk panel is strongly risk-off as SPX is falling while the 10 year Treasury price is rising. VIX has risen (though not yet to crisis level). Bullish percent has dropped. The Naz has dropped. USD has dropped back into its channel beginning in 2023.

Gold and copper are both rising. Oil is stable in its channel but natgas is rising.

The stock market is still in a bubble. The small drop in the indexes just blew a little froth off the top and aren’t yet a substantial so-called “correction.”

Stock investors are responding to these fears by shifting away from the high-flying “Magnificent 7” to dividend-yielding stocks in addition to gold and U.S. Treasuries.

https://www.wsj.com/finance/st...

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.4 percent on March 6, up from -2.8 percent on March 3. After recent releases from the Institute for Supply Management, the US Bureau of Economic Analysis, and the US Census Bureau, the nowcasts of first-quarter real personal consumption expenditures growth and real gross private domestic investment growth increased from 0.0 percent and 2.5 percent, respectively, to 0.4 percent and 4.8 percent, while the nowcast of the contribution of net exports to first-quarter real GDP growth fell from -3.57 percentage points to -3.84 percentage points.

While the Atlanta Fed’s model has correctly predicted higher GDP growth than the “Blue Chip Consensus” it is now well below that consensus.

The Cleveland Fed’s Inflation Nowcasting predicts Quarterly annualized percent change of CPI for 1Q25 will be 3.91%, with no drop in CPI or PCE (regular and core).

All inflation measures are well above the Federal Reserve’s 2% target. Fed Chair Powell reiterated this week the FOMC’s intention to hold steady on the fed funds rate as long as the labor market and economy are strong. As usual, speculators are front-running the Fed and predicting more fed funds cuts in 2025 instead of listening to Powell. This always leads to market volatility when they are disappointed.

Financial conditions are still very loose but have tightened slightly in the past week. The Chicago Fed’s National Financial Conditions Index (NFCI) provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems. This has a greater impact on commercial and consumer borrowing than the Treasury yields.

The METAR is for increasing cloudiness trending toward rain. A cold front is moving in. It’s not clear yet whether the rain will be relatively calm or whether the increasing uncertainty of constantly-changing economic stress from the administration will cause a sudden storm in the markets.

Wendy

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