Payden & Rygel: Aggregate US Consumer Income Growth
The April 2nd tariff announcements were more significant than expected, as the U.S.effective tariff rate could potentially increase ten-fold from ~2% to ~22%. Instead of achieving their putative purpose of bringing manufacturing jobs back and raising government revenue, we think tariffs serve as a tax on U.S. consumers and businesses, crimping growth.
The bond market agrees, with U.S. 10-year Treasury yields plunging from 4.25% at the start of the week to 3.94% as of Thursday. Stocks, too, tumbled another -6.5% this week, bringing the S&P 500 drawdown to -15% from its recent peak.
So what's the good news? At least heading into the tariff shock, the U.S. economy and consumers were on solid footing. The March jobs report released on Friday showed a healthy 228k jobs added to payrolls. Further, aggregate consumer income is still increasing at a 5.1% clip as of March, above its long-run average of 3.6%. Consequently, it's still possible that the U.S. will avoid a recession in 2025.
And remember, the Fed has ample room to cut policy rates if growth is weaker than expected. So stay calm and remain nimble.