Econ Intel Brief - March 7, 2025
On today's jobs report and the U.S. economic outlook
All,
I am restarting my economic intelligence briefs, which provide those on the Hill, in the admin, downtown, etc. with info on major U.S. data prints within 60 minutes of release.
These briefs started when I was the Republican economist at Senate Banking. I expanded them while serving as the Republican chief economist at JEC. I took a break to focus on my PhD dissertation. I am back, and happy to help once again.
Have questions or suggestions? Looking for an experienced witness to testify? Want an in-person briefing? Email chris@russoecon.com or call/text (908) 947-5166.
Feel free to forward to your colleagues. Subscribing is free. You can unsubscribe at any time.
Best,
Chris Russo
Key Takeaways
At 8:30am, the BLS announced that in Feb 2025…
The U.S. economy added 151,000 non-farm jobs, slightly below expectations.
140,000 of these jobs were in the private sector, with the bulk in services.
Two notable sectors were health care (52,000 jobs added) and Federal government (10,000 jobs cut).
N.b., these figures are as-of the 12th of February. Additional cuts to Federal employment since the 12th will be reflected in next month’s jobs report.
The unemployment rate was 4.1%, little changed from the prior month.
The labor force participation rate was 62.4%, little changed from the prior month.
As of writing, the market reaction is muted. U.S. equity futures edged higher on the news, but then reversed. The 10-year Treasury yield edged down to 4.22%.
Highlights for Media Hits
This report is pretty boring. If you need to discuss it, then I might suggest…
No signs of a recession during Pres. Trump’s first month back in office. Job growth is solid for the fifth year of an economic expansion, and this month’s job growth is 26,000 higher than Pres. Biden’s last month in office.
Average hourly wages and average weekly wages continued growing at a steady pace, and likely outpaced inflation. (Wages are rising faster than prices.)
The number of discouraged workers (people who believe that no jobs were available for them) decreased by 128,000.
Current State of the U.S. Economy
Toward the end of 2023, I made three major predictions about the path of the U.S. economy.
Inflation would continue to decline, but remain “sticky” above the Fed’s 2% annual target.
Unemployment would rise above its historical lows, but there would not be a recession.
Wage growth would stay above inflation, raising real wages above pre-pandemic levels.
My predictions have been largely borne out. The 12-month percent change in the CPI has ticked down a few tenths to about 3%. Unemployment has also increased slightly, rising to about 4%. While job growth has slowed, it remains positive, and average wage growth continues to outpace inflation. Real wages are now comfortably above pre-pandemic levels.
U.S. Economic Outlook: Highly Uncertain
Where is the U.S. economy headed? The outlook is highly uncertain. Ultimately, it may depend on the policy choices made by Pres. Trump and Congressional Republicans.
Pres. Trump and Republican lawmakers are advancing tax and regulatory reforms that would bolster incomes, increase employment, raise productivity, and reduce consumer prices. A few examples:
Making permanent the pro-growth provisions of TCJA. A few examples: defining taxable income as EBITDA; “bonus depreciation” (expensing capital investment); and favorable tax treatment of research and development.
Stopping and reversing Pres. Biden’s punitive war against U.S. domestic energy production. One recent example: Sen. Barrasso’s bill to repeal the minimum book tax. There are also several CRA disapproval resolutions that are pending.
Preventing the banking agencies from undermining Sen. Crapo’s Dodd-Frank reform act (S. 2155), which was a key achievement of Pres. Trump’s first term with strong bipartisan support.
However, recent data paints a bleak picture of Q1 GDP growth. The Atlanta Fed’s GDPNow model projects that the U.S. economy is contracting at an annualized rate of 2.4%. This primarily reflects weakness in the ISM manufacturing index, which fell by 0.6 percentage points in Feb.
Consumer confidence is also sharply falling. Both the Consumer Confidence Index (Conference Board) and Consumer Sentiment Index (University of Michigan) fell by 7.0 points in Feb. I suspect that falling consumer confidence is driven by uncertainty about economic policy.
Watch the New York Fed’s Staff Nowcast, which should update sometime today. This will serve as a useful gut check on the Atlanta Fed’s nowcast. (The New York Fed’s model uses an entirely different methodology to forecast GDP growth.) Fed Chairman Powell will also be discussing the economic outlook at 12:30pm.
Advice for Lawmakers to Avoid a Recession
To avoid a recession, Republican lawmakers should rapidly deliver on their promises of pro-growth tax reform, smart deregulation, and deficit reduction.
In particular, Congress should codify Pres. Trump’s pro-growth regulatory reforms into law. Uncertainty about future “re-regulation” is blunting the positive effects of these reforms. This is particularly true for capital-intensive industries like energy. Codifying regulatory reforms into law would reduce this uncertainty, and thereby spur additional capital investment, employment growth, and economic growth.
Finally, it would help for Republican lawmakers and admin officials to (loudly and regularly) reassure financial markets that Republicans will raise the debt limit before the “X Date.” The U.S. Federal government will not miss any interest payments on the national debt, and will not be delinquent on any of its payment obligations.
When the debt limit is raised, the Treasury Department should be cautious about the rate at which it rebuilds cash balances. The Federal Reserve continues to drain reserves from the financial system, and a sharp increase in Treasury debt issuance and cash balances could unexpectedly push up interest rates. (A similar scenario played out in 2019.) This could threaten financial stability and the U.S. economy.
Preview of Upcoming Data Releases
The next Econ Intel Brief will cover the CPI inflation release on 3/12/2025 at 8:30am.
The Cleveland Fed’s model, which incorporates real-time data on energy prices, forecasts a month-over-month increase of 0.23%. This would lower the 12-month rate of inflation to 2.83%, which is still above the Fed’s 2% target.
Owing to inflation’s persistence and continued job growth, options markets are pricing an 97% chance that the Federal Reserve will hold interest rates steady at its next meeting (March 18-19). The current target range for overnight interest rates is 4.25% to 4.50%.