2025 Layoffs & Stagflation: How Bad Will It Get? | Eric Basmajian

Summary

Eric Basmajian of EPB Research argues that 2025 stagflation fears are overdone because tariffs are more likely to slow growth than create broad 1970s-style inflation absent a money-supply surge. He sees the U.S. economy in an early cyclical slowdown, with construction and manufacturing labor the key warning area, tight monetary policy, and long lag times from the post-COVID housing and durable-goods backlog. In asset allocation, he prefers large-cap U.S. equities while the labor market holds, expects bonds to benefit as rates fall, and avoids homebuilders, trucking, manufacturing-linked cyclicals, and small caps.

• Tariffs likely reduce growth more than create broad inflation; stagflation comparison is overstated.
• Leading indicators still work, but post-2020 housing and auto backlogs delayed the normal cycle sequence.
• Construction and manufacturing job losses are the key labor-market warning, though losses are still early.
• Monetary policy remains tight based on about 1% real money supply growth; mortgage rates stay elevated.
• Large-cap S&P 500 and Nasdaq can keep performing while labor market and passive/buyback flows remain intact.
• Bonds/fixed income should improve as the cycle matures and rates fall.
• Homebuilders, trucking, manufacturing-linked cyclicals, and Russell 2000 small caps are to be avoided.
• Housing weakness is expected to move from volumes and construction toward home prices, especially in the Sun Belt.