Two things can be true: This is a terrible job market for recent graduates and many other segments of the white-collar job market and yet nearly 40% of employers can’t fill open roles.

The neo-liberal consensus of free trade and integrated supply chains is under heavy strain due to growing populism in the developed world (which has seen stagnant wage growth) and in response to national security concerns. COVID-19 laid bare the glaring problems of not having domestic production in items such as pharmaceuticals and semiconductors. Both the Biden and Trump administrations have been focused on decoupling from China, albeit in very different ways. President Biden used the carrot in the form of industrial investment and corporate subsidies (i.e., the CHIPS and Science Act and provisions of Build Back Better). The Trump Administration has used the stick in the form of tariffs.

The housing market, in most of the country, is getting weaker. Activity remains slow, prices are negative across the Sunbelt, and inventory of both new and existing homes are moving to the highest levels since the GFC. Employment is getting weaker. Continuing unemployment claims are making new highs on a weekly basis and even initial jobless claims are finally inching up. Measures of credit delinquencies in credit cards and auto loans are also making new post GFC highs. Consumer confidence surveys tell us that the consumer is beyond pessimistic.

Last week the NY Fed published the results of a survey of regional manufacturers and service providers titled, “Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?,” Federal Reserve Bank of New York Liberty Street Economics, June 4, 2025.

Earlier this week, Axios interviewed Anthropic CEO Dario Amodei and they advertised the comments from Amodei with the stunning headline, “AI could wipe out half of all entry-level white-collar jobs.”

“We expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.” Moody’s Friday May 16th

It is very unlikely we see a recession without a housing recession or an acceleration in the economy without housing leading the way.

Markets are intuitively rallying as it appears trade wars are ebbing and institutional investors find themselves wrong-footed. That said, tariffs have not gone away altogether, and they are and will be a regressive tax on working class Americans. They will also continue to disincentivize capital spending and hiring intentions.

Yesterday, Diamondback Energy (FANG), a $40 Billion exploration and production company in Texas, and a darling of Wall Street analysts wrote an extraordinary letter to shareholders. The CEO Travis Stice wrote the following:

CEO confidence recently hit the lowest level, by one measure, in fifteen years and yet Q1 earnings have been strong and ahead of Wall Street expectations.

Consumers, according to The Conference Board and the University of Michigan, are in a panic and yet spending at retail and among Visa customers show few signs of weakness.

Consumer confidence has taken a significant hit over the last couple of months and the impact of tariffs has not even materialized yet. Barring a policy reversal from the Trump administration, it is hard for us to envision an economic scenario that does not involve a recession when such a large cost of living shock is looming for working class Americans. - Tim Pierotti

"We don’t have a time machine. We can’t go back and re-write NAFTA or the terms by which China entered the WTO. We can play the hand which we are currently dealt. The US needs high ROI investment. The US needs to focus on ensuring that our population is the best educated in the world so that we continue to be the center of global innovation." - Tim Pierotti

The current consensus Wall Street narrative regarding this administration’s economic policy goes about like this: Bessent et al want to slow the economy to get rates down.  With lower rates, companies will be able to refinance more cheaply and that will put the economy in a better position to grow longer term. 

The decline of stocks and property held amid an increasingly concentrated minority risks economic weakness. The markets tail wags the economy dog.

We have been making the case for more than a year now that the unprecedented fiscal support in the economy, the easy financial conditions, the secularly tight labor market and the generational transfer of massive, accumulated wealth would drive the economy and risk assets higher until inflation and interest rates get in the way.

Valuations? We’re Talking About Valuations?

There is a lot of debate happening right now, largely along partisan lines, about whether tariffs are inflationary.  Market participants in support of the President-elect are loudly making the case that the example of the tariffs of 2018 prove that tariffs are not actually inflationary.  The Fed Staff and the economics team at Goldman Sachs have empirically demonstrated those claims to be misleading at best. The chart below from Goldman illustrates the reality of what happened last time around.  The chart shows that while broad measures of inflation showed little impact, the industries impacted by the tariffs saw meaningful inflation.

"Whether or not you think there will be real NEED for companies to pass through a tariff or not, that is secondary to whether or not they CAN. What the study informs us is that if they can, they will." - Tim Pierotti

In the wake of the recent “Red Wave” election results, one might be wondering if there are any restraints on the incoming administration. Republicans will control the White House and both the House and Senate. The Supreme Court is controlled by conservatives who have expressed an unprecedented view of the “Unitary Executive”. In some regards those concerns may be justified and we are likely to see a White House that is unrestrained relative to history. But when it comes to the economy, this administration will still have to answer to a higher authority: the bond market.

The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications, a new working paper from The Dallas Fed answers an economic question that has become a highly political one. Has the significant rise in unauthorized immigration exacerbated inflation? The answer, according to a team of economists led by Anton Cheremukhin, is no, nor has it been disinflationary. In summary, they conclude, “Contrary to the popular view, we find little effect on inflation, as the increase in supply was largely offset by an increase in demand.”