While US markets are opening lower with the major averages all down by 1%, this does come on the heels of a weaker than expected July jobs report.
The data showing non-farm payrolls added only 73,000 positions as the unemployment rate ticked higher to 4.2%.
The average hourly earnings year over year did beat estimates.
And the Trump administration placing tariffs between 10 and 41% on dozens of countries starting on August 7th.
Tranship goods will be tariff 40%, and Canada is now facing a 35% tariff rate.
Well joining me as we kick off a new trading month is Sapandey, S&P Global ratings, cheap US and Canada.
Economist.
Good morning.
Thank you so much for joining me.
So first and foremost, I do want to start out with the employment report.
We saw non-farm payrolls for the latest month coming in at 73,000 below forecast, and we saw steep downward revisions for the previous two months.
So what does both the non-farm payroll and unemployment rate tell you about the US labor market?
Well, uh, If you look at it in totality, we are seeing a labor market that has weakened quite a bit over the 1st 6 months of the year, actually over the 7 months of the year.
We've had both demand and supply slowing down in the US, you know, some of it has to do with the immigration curves and some of it has to do just with the slowing down of the economy on a cyclical basis.
So when you look at The details we're only getting growth from health care sector which is more structural, and even the government once you take out the private sector or just the federal government, that's losing jobs quite a bit.
So all in all, you don't have much demand growth in the labor market going on uh so that is reflective of the weakness in the GDP growth that we saw in the second quarter as well, so.
We are seeing a situation where we may be on a sub trend growth path for some time to come, at least in the second half of the year.
And Sam, of course I do have to ask you about monetary policy here.
So the Federal Reserve kept rates unchanged amid inflationary pressures on some goods from tariffs and a solid labor market for now.
But what does Powell's speech tell you about where the FOMC stands and what do you expect to see for the rest of 2025?
Well, the FOMC is walking a fine line here because they've got inflation pressures coming from the tariffs, but at the same time, as we just saw this morning, the labor market's weakening.
It looks like it's a tossup for September, even though we ourselves had been assuming.
Maybe perhaps they'll resume the easing in October.
It looks like at least from the report that came out this morning for the labor, they may just go ahead and begin cutting in September.
Again, we've got two more inflation reports to come between now and the September FOMC meeting.
So but in totality we know that the Fed's response function right now. is more weighed towards the downside risks of the employment mandate.
So anything that suggests that the employment picture is deteriorating fast, that's going to make them, uh, you know, take that step towards cutting again.
And today is August 1st, the day that we had all been waiting for.
But of course the goalpost continues to move forward.
So how do you expect the markets to react to tariffs and in the long term, how do you expect these negotiations, these talks to shake out?
Well, we have now essentially gone back to somewhere close to 18% effective tariff rate for all the imports coming into the US.
Yes, we had that reprieve for the last, in a couple of months, but it seems like there are still, there are still some more negotiations happening, but it looks like.
The minimum universal rate is going to be sticky around 15% for some major trading partners and for some smaller trading partners around 10%.
We have lots of details to go through.
There are still some challenges in the courts.
There are still negotiations going on, but all in all, we are looking at some more inflationary pressures in the pipeline once this tariff threat settles down.
And finally, before I let you go, we have about 60 seconds here, so you not only cover the US but also Canada as well.
So in terms of the tariffs, what are your expectations moving forward?
Well, the president himself put on 35% on Canada, starting today itself, while the rest of the trading partners have a 7 day runway.
With Canada, you have to also consider the USMCA exemptions that are in place right now, so the Goods that are coming in with some content within the US, Canada, Mexico borders, those are exempt from these reciprocal tariffs that were announced at 35%.
So all in all, it looks like once you do the adjustment with the USMCA content, that they are facing about 11 to 12% tariff rate on their goods.
Canada is at a weirder sort of a weaker state in their own cycle, so this is not good for them.
They're quite reliant on their trade partnership with the US and their economic outcomes, so at least in the near term, uh, their GDP growth is going to be much weaker than what otherwise would have been.
Well Jim, thank you so much for joining me on this Friday morning and thank you for sharing your insights and perspective.
