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Are Tariffs Sparking Stagflation Risks?

Are Tariffs Sparking Stagflation Risks?

The Macro Institute's Weekly Economic Primer

The Macro Institute
March 31, 2025

There is a lot of consequential data out this week. We will be keenly focused on the PMIs with the Chicago and Dallas Fed indices on Monday, the ISM Manufacturing Index on Tuesday, and finally, the ISM Services Index on Thursday. Still, all eyes this week will be on the March payroll report on Friday. We will gather some info ahead of that with the release of JOLTs data on Tuesday and ADP data on Wednesday. These data points, collectively, will help us understand where inflation is likely to be headed later in this year.

The Macro Week In Review

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The Macro Week Ahead

🎈 Tariffs Fueling Stagflation?

We’ll keep our tariff commentary brief, as the situation remains fluid. The key event this week isn’t directly related to economic data. Thursday brings the April 3rd imposition of a 25% import duty on autos and auto parts, with tariffs on semiconductors and pharmaceuticals likely to follow. This matters because recent survey data suggests stagflation (slowing growth and rising inflation) could be on the horizon.

March’s regional PMIs hint at weaker new order activity, but the real standout has been pricing expectations, with Richmond and Empire readings nearing 2021 levels. Meanwhile, the Conference Board’s consumer inflation expectations surged to 6.2% y/y (5.1% median), and February’s PCE came in hot at 2.8%, up 20 bps m/m. Clearly, both businesses and consumers anticipate significantly higher prices in 2025. This raises the question: who will bear the brunt of this inflation? The supply chain or consumers?

📅 The Week Ahead

Monday and Tuesday bring fresh insights, with the Chicago and Dallas PMIs, S&P Global PMIs, and ISM Manufacturing reports. Consensus expects headline numbers to hover just below the expansion/contraction threshold. Notably, February’s ISM Prices Paid hit 62.4 - the highest since the 2021 inflationary spiral - and March’s regional data suggests another elevated reading.

Despite Wall Street’s “growth scare” since February, labor market data has held up. Initial Jobless Claims remain subdued, and unemployment sits at 4.1%. However, forward-looking consumer expectations tell a different story, with March’s numbers resembling recessionary levels.

This week’s employment data kicks off with Tuesday’s JOLTS report for February. So far, this series hasn’t shown red flags, with January layoffs at 1.0%, quits at 2.1%, and job openings at 4.6%.

The real test comes later in the week with employment reports from ISM (Tuesday), ADP (Wednesday), Challenger (Thursday), and the BLS Payrolls report (Friday). We’ll see whether March’s consumer pessimism about jobs translates into broader labor market weakness. As it stands, leading indicators suggest the employment market remains strong, with wages set to reaccelerate.

Is consumer sentiment too politically fragmented to be a reliable indicator, or are real cracks starting to form in the labor markets? Answers are rarely straightforward, but by next week we’ll have a clearer picture.

Macro Job Board

VP, Quantitative Investment Strategies Research @ Morgan Stanley (New York)

Conduct independent research on quantitative investment strategies across all asset classes with a focus on volatility in macro assets and equities. Experience in non-linear systematic strategies involving options for alpha generation or hedging is required.

VP, Global Macro Research Strategist @ Citi (New York)

Expected to collect, outline and explain information giving insights that drive creative solutions in the Macro environment in which our clients businesses operate. Their insights provide clarity the client needs to make investment decisions.

Global Macro Research Analyst @ Goldman Sachs (Washington, DC)

This candidate will closely monitor political and policy developments
and assist economists to publish timely and innovative research on macroeconomic, political, and policy developments and their economic impact. They will also work on economic research projects and publications.