Disentangling the signal from the noise on U.S. trade matters is becoming an increasingly difficult task. This week, President Trump and U.S. Treasury Secretary Scott Bessent both called out the tariffs on China as being “too high”. At 145%, Bessent said trade with China becomes “unsustainable” and that he expects the current situation to de-escalate in the “very near future”. China appears open to negotiations and even went as far as exempting some U.S. goods from its retaliatory tariffs. The abrupt U-turn in the administration’s tone alongside President Trump’s assurance that he will not remove Fed Chair Powell, helped to fuel a mid-week rally in U.S. equities, with the S&P 500 ending the week up 3.5%. But investors remained skeptical of whether the move to de-escalate was the beginning of a broader pivot or simply backpedaling on the overly punitive levies imposed on China given the significant economic repercussions.

Despite claims of over 90 countries having offered to negotiate trade terms, President Trump appears to be growing frustrated with the lack of progress made on reaching deals. He even went as far threatening to re-impose the “reciprocal” tariffs on some countries over the coming weeks if trade deals weren’t signed.

But even if there’s a big push on trade negotiations over the coming weeks, at least some economic damage has already been done. In the April release of the Federal Reserve’s Beige Book, several districts noted a considerable worsening in the economic outlook amid heightened uncertainty stemming from tariffs. Spending on both business and leisure travel were down, with some districts seeing an outright decline in international visitors. On inflation, many businesses noted that they’re already seeing input costs rise and that they expect to pass-on at least some of the additional costs to consumers. But this may not be possible for some consumer-facing sectors, who are already reporting more tepid demand. 

Estimates done by Reuters suggest that of the S&P 500 companies who have already reported quarterly earnings, over 90% have mentioned tariff risks in their earnings transcripts. This is more than double what was mentioned the prior quarter and underscores how today’s uncertainty is touching nearly all industries. This does not bode well for capital spending. 

The housing recovery is also looking to be on hold. Existing home sales declined 5.9% m/m in March, falling to a six-month low of 4.0 million units (Chart 1). With mortgage rates again within spitting distance of 7%, and households increasingly worried about employment prospects, we’re likely to see a further pullback in sales activity over the coming months. Construction activity was also sharply lower in March, amid elevated trade uncertainty and higher input costs. Homebuilder confidence for April remained soft, suggesting little rebound in near future. 

Our current tracking for first quarter real GDP (released April 30th) suggests economic growth grew by just 0.3% annualized after expanding by an above trend pace of 2.9% through the second half of 2024 (Chart 2). But the GDP release will play second fiddle to next week’s more timely April jobs report. Expectations are that the economy added 130k jobs in April, a meaningful stepdown from March’s 228k pace.