Labor Market ‘Cracks’ Are ‘Spreading’; Should You Be Worried? | Eric Basmajian

Summary

Eric Basmajian discusses the return of tariff threats, arguing they are not inflationary under restrictive Fed policy but would be negative for growth if sustained. He sees the labor market weakening beneath stable headline data, with low hiring, rising part-time economic work, and a delayed layoff cycle cushioned by elevated profit margins. He expects the Fed should ease slowly, wage growth to keep cooling, and cyclical sectors, especially housing, to stay weak, while non-residential construction and data center demand remain strong.

• Tariff announcements resumed; sustained higher tariffs would weigh on US and global growth and could raise unemployment.
• Tariffs are not broadly inflationary while monetary policy remains restrictive and real money supply is not growing.
• Headline labor data look stable, but hiring, full-time employment, and prime-age employment indicators show late-cycle deterioration.
• Companies are throttling hours and shifting to part-time work to protect elevated post-pandemic margins before resorting to layoffs.
• The low quits rate points to continued wage compression over the next few quarters.
• Residential construction and housing remain weak, with depressed volumes, slowing construction, margin erosion, and eventual layoffs.
• Non-residential construction is stronger because data center demand is robust.
• Eric favors slow Fed easing as the economy slows, even though current data do not make a strong case for aggressive cuts.