March 23, 2025

QuickTakes

ECONOMIC WEEK:

March 24–28

The predominant theme of the economic week ahead will be inflation, both realized and expected. Consumer inflation expectations will be updated for March, while February's PCED inflation rate also will be released (both Fri). Cooler-than-expected CPI and PPI prints last month aren't likely to translate to the PCED due to some hotter components that feed through to the Federal Reserve's preferred inflation gauge. Regardless, February's inflation data are relatively stale. We think consumer expectations and any new tariff news ahead of the April 2 "Liberation Day," when President Trump will impose reciprocal tariffs around the world, are more likely to move the markets.

Here's what we're watching:

(1) Sentiment. March's Consumer Confidence Index (CCI) survey (Tue) from the Conference Board may suggest that the DOGE Boys' whacking of federal payrolls, federal agencies, and federal contracts is depressing the labor market a bit, not a lot. We're expecting the CCI survey to show a generally resilient jobs market with few layoffs (chart).

March's Consumer Sentiment Index (CSI) survey from the University of Michigan (Fri) is likely to be heavily affected by inflation expectations on a partisan basis. The index has been depressed for several years, and tariffs recently increased year-ahead expected inflation to a near-record high (chart). The CSI survey shows that Democrats are much more pessimistic than Republicans on the outlooks for both inflation and the economy. We give more weight to the CCI survey.

(2) Inflation. The Cleveland Fed's inflation Nowcast shows the headline and core PCED increasing 2.38% and 2.60% y/y, respectively, for February, with 0.19% m/m increases for both during the month. A monthly increase closer to 0.3% is more likely considering the hotter PCED-driving components of the CPI and PPI. Regardless, even a recurring 0.19% m/m increase would keep inflation above the Fed's 2.0% y/y inflation target (chart).

(3) Personal income. Our Earned Income Proxy for wages and salaries in the private sector rose 0.4% m/m in February. Personal income (Fri) growth during the month should at least match that increase (chart). Of course, the stock market's main fear is that Trump's Tariff Turmoil 2.0 will depress the economy and employment. We share that concern but continue to bet on the labor market's resilience.

(4) Regional manufacturing. The M-PMIs from the regional Fed banks for Richmond (Tue) and Kansas City (Thu) are likely to show that expected tariffs are raising prices and depressing production expectations (chart). That would suggest that the nascent rolling recovery in the manufacturing sector is on pause. However, if trade negotiations after April 2 lead to reciprocal cuts in tariffs and trade barriers, purchasing managers’ sentiment could rebound quickly.

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