Weekly Signal & Noise Filter
A Regime Changing Economic Shock
Liberation-Day changed the information surface, taking it from a risky but mostly benign scenario to a worse than beyond all expectations outcome. This has killed the possibility of skating through a can-kicking growth valley (PB’s prior baseline expectation).
Instead of a soft Q1, mid Q2 rebound, and a stronger H2 for 2025, the growth sequencing will likely be a soft H1 and a weak, H2. This of course would be a benign outcome we can only hope for at this point, as this is what is baked in the cake.
Equities went from a corrective growth scare to at one point starting to price in a mild recession (the February 19th peak to the April 8th trough was 19%).
President Trump’s kill switch has kicked the can on that, but the current state leaves the economy hurt and hobbling into year-end, but not yet mortally wounded.
While there is still a narrow window of a few weeks to walk it back to midfield, the damage is done and the die is cast, and the economy has entered a late-cycle stage signaled by uncertainty, policy volatility, and macro deterioration. Not to mention institutional governance deterioration.
The current batch of high frequency macro data (NFP, inflation) is probably the last round of data consistent with the soft landing as victory is thrown into the jaws of defeat.
It was good while it lasted….
Ironically, Pinebrook’s most recent economic growth update focused on sectoral (im)balances and how a recessionary outcome is typically the result of a shock to those (im)balances.
Trump has given the economy its shock, and the question now is if the sectoral flows between the public and private sector, or the flows between the U.S. economy and its trading partners, will be overwhelmed by this shock and lead to a recession.
We don’t know of course, and neither does anyone else. The recessionary window may be closed shut by the Administration flinching or by its trading partners’ acquiescence to President Trump in the next day or three. Political games of chicken are hard to predict, and their trajectories are non-linear.
The core economic issue is a general price shock without a corresponding increase