Gregory Daco

📉Wage growth is easing and premium for job switching has turned into a discount... all this points to softening labor market conditions

Chart via @AtlantaFed

⚠️Share of CEO reporting net reduction in workforce

⛔️12 month ahead: 34%: highest since Covid

⛔️3 years ahead, annually: 29%: highest ever

🤨The Conference Board CEO confidence index rebounded in Q3 after collapsing in Q2.

Still, it remains under 50 -- signaling ongoing pessimism about current conditions & the economic outlook.

😨Top 3 risks
1⃣Geopolitical instability
2⃣Cyber
3⃣Tariffs/Trade

With new tariffs in effect, economists see profit dips and price hikes up ahead Profit hits and price hikes are already coming down the pike as a result of new U.S. tariffs, according to economists.

"There is very little evidence that foreign exporters are reducing their prices... an indication that they realize that it's US importers, businesses & eventually consumers that are bearing the brunt of this tariff-induced inflation acceleration" said Daco www.cbsnews.com/news/trump-t...

🚨 Tariffs reset. Just as the US imposes a fresh round of tariffs on most major trading partners, our latest EY Parthenon Trade Compass is out

🔹 August 7 tariff reset
🔹 Economic impact
🔹 Trade deal frameworks
🔹 Policy deadlines
🔹 Sector spotlights

www.linkedin.com/posts/gregor...

Waller Emerges as Favorite for Fed Chair Among Trump Team Federal Reserve Governor Christopher Waller is emerging as a top candidate to serve as the central bank’s chair among President Donald Trump’s advisers as they look for a replacement for Jerome Powell...

www.bloomberg.com/news/article...

🇺🇸 Initial claims for #unemployment pick up in early August while continuing claims rise to a near-4 year high

📉Claims: 226k (+7k)
📉4-wk avg: 221k (-1k)

⚠️Continuing claims 1.97mn (+38k): High since Nov '21

⚠️Fed employees
📈Continuing 7.8k (+424 Jul 19)

🆒Unit labor cost rose a modest 1.6% in Q2 as compensation growth cooled 1ppt to a still-elevated 4.0% & productivity growth provided a 2.4% offset

⚠️Factoring productivity growth 1.3% y/y, unit labor costs picked up to a moderate 2.6% y/y -- down from peak of 6.4% y/y in 2021

💪The trend in productivity growth has softened below 2% in recent quarters. The latest two quarters overstate the softening, but they show the blow from a self inflicted #tariff slowdown

▶️1.3% y/y in Q2 2025: +0.1pt from Q1

▶️Still near the upper end of the 2010-2019 range

📈 Robust productivity advance in Q2 overstates momentum, just like Q1 black eye was misleading; due to tariff-induced trade swings

✅Nonfarm biz sector labor #productivity +2.4% in Q2
▶️Output 3.7%
▶️Hours worked +1.3%

🆒Unit labor cost moderate 1.6%
▶️ Compensation +4.0%

Trump says he will impose a 100% tariff on imports that include semiconductors, though would exempt companies moving production back to the US, as Apple announced a fresh $100 billion investment plan www.bloomberg.com/news/article...

Forward guidance is more reserved:

"The restrictiveness of monetary policy has fallen..."

"The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which **underlying disinflationary pressures continue to ease** "

👀First time in 28 years that 2 rounds of voting were necessary.

Alan Taylor initially favored 50bps of cuts but eventually realigned to 25bps majority in the second vote

Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill preferred to maintain Bank Rate at 4.25%

🚨Bank of England cuts rate 25bps to 4%

⚖️5-4 after 2 rounds of voting

▶️Substantial disinflation progress
▶️Focus on squeezing out existing & emerging inflation pressures
▶️Medium term inflation risk are up
▶️Growth subdued
▶️Margin of slack
▶️Geoeconomic uncertainty elevated

🚨Global supply shock

‼️New US #tariffs taking effect on August 7 are set to raise the average tariff rate to 17.6% — the highest level since the early 1930s – from 2.8% at the start of the year

U.S. data is a bedrock of the American economy. Now it’s under attack. Trump’s attack on the federal jobs statistics is the latest blow to essential U.S. infrastructure that has taken a century to build.

U.S. data is a bedrock of the American economy. Now it’s under attack.

“If the data loses credibility, that means more people flying blind. And we know that when more people fly blind, there is a risk of accidents” Daco said

www.marketwatch.com/story/u-s-da... via @marketwatch.com

⛔️Transition rates into severe delinquency (+90 days) indicate increased financial stress

💳Credit cards: 6.9% 🆚5.3% pre-Covid
🚗Auto loans: 2.9% 🆚 2.4% pre-Covid
🏠Mortgages: 1.3% 🆚 1.2% pre-Covid
👩‍🎓Student Loans: 12.9% 🆚 9.2% pre-Covid

💳Credit card debt is concerning:
⚠️12.3% of balances in severe delinquency (+90days)
⚠️highest since 2011

🚗Auto loan delinquencies are concerning
⚠️5% of balances in severe delinquency (+90days)
⚠️highest since 2020 & 2011 before that

🚨I estimate over 8mn student loan borrowers either past due or in default

▶️Department of Education & Treasury began collection efforts for defaulted loans in May
▶️Garnishment of wages, tax returns & Social Security payments
▶️Credit score declines
▶️Lower access to credit

As a reminder from @newyorkfed.bsky.social, one in four student loan borrowers were behind their payments as of Q1.

As of Q2, one in ten is +90days delinquent

libertystreeteconomics.newyorkfed.org/2025/05/stud...

👩‍🎓Payments on federal student loans were paused from early 2020 through Sep '23

📉During this time, delinquency rate on student loans fell to <1%

💰Payments then resumed with a 1yr on-ramp until Oct 2024. Bank reporting resumed in Q1 '25

⚠️10.2% ($162bn) are +90days delinquent

📊The share of balances going from "current" to 30-day delinquent is surging due to student loans. Stable for others.

💳Credit cards: 8.6% 🆚 6.8% pre-Covid
🚗Auto loans: 8.0% 🆚6.9% pre-Covid
🏠Mortgages: 3.7% 🆚 3.5% pre-Covid
👩‍🎓Student loans: 13% (RECORD) 🆚 9.1% pre-Covid

⚖️A nuanced credit picture as fixed cost debt has partially buffered the impact of #Fed's tightening cycle

📊30/90 day delinquencies have risen over past 2 years & now in pre-pandemic range

📉120+ days delinquencies surging as student loan delinquencies surge (banks reporting)

@newyorkfed.bsky.social Household Debt & Credit Report for Q2 '25

1⃣Delinquency rate rose to 4.4%, largely from resumption of student loan delinquency reporting

2⃣New 30/90-day delinquency driven by student loans

3⃣Transitions into delinquency for credit cards & auto loans > pre-Covid

Trump Just Got a Fresh Shot at Bending the Fed to His Will A Biden appointee’s early departure offers the president potential help on interest rates—and a way to make life difficult for the Fed chair.

Trump Just Got a Fresh Shot at Bending the Fed to His Will

Biden appointee’s early departure offers president potential help on interest rates—and way to make life hard for Chair Jerome Powell

www.wsj.com/economy/cent...

The ISM Services Price gauge is probably over-stating the forthcoming #inflation reacceleration from #tariffs but the direction of travel is clear

Most purchasing managers reporting cost pressures from #tariffs, lingering uncertainty, order delays & cancellations, and business activity flatlining

One purchasing manager in retail seems to have adopted the "all is fine" philosophy that prevailed before the July jobs report

Soft @ISM Services in July: near contraction with flat orders, contracting employment & backlogs, & highest prices since '22

🟠ISM Services 50.1 (🔻0.7pt)
🟠Activity 52.6 (🔻1.6pt)
🟠New Orders 50.3 (🔻1pt)
⛔️Employment 46.4 (🔻0.8pt)
⛔️Backlogs 44.3(🔼1.9pt)
🔥Inflation 69.9

📈US goods & services #trade deficit narrowed $11.5bn to $60.2bn in June

❔Post-#tariffs demand cliff plus weaker consumption

🔻Exports -0.5%: weaker industrial supplies offset by stronger cons/capital gds

🔻Imports -3.7% Sharply lower consumer gds, industrial supplies & autos

Trump Says Bessent Doesn’t Want to Be Considered for Fed Chair President Donald Trump said Treasury Secretary Scott Bessent told him he did not want to be nominated to replace Jerome Powell as the next chair of the Federal Reserve.

www.bloomberg.com/news/article...