Deficient Week in Review

A trade deal, a growing deficit, & more

This was a week of firsts: the first American pope, the first of Trump’s trade deals, and the first time our monthly trade deficit in goods exceeded $160 billion. What it lacked in economic data releases (and Orioles’ victories) it made up for in economic news.

Monday

ISM Services PMI

The good news: the services side of the economy expanded for a tenth consecutive month in April, according to this survey of service sector managers. A majority of industries included in the survey expanded for the month, including leisure and hospitality, trade (rushing to beat tariffs), real estate, and healthcare.

The bad news: 6 of 17 industries included in the survey contracted for the month, including agriculture, professional and scientific services, finance and insurance, management and support of companies, public administration, and construction.

The worse news: input prices paid by services companies rose at their fastest pace since January 2023.

TSA Checkpoint Travel Numbers

Air travel slowed this past week and is back to being roughly 2% below 2024 levels, according to TSA data. It’s hard to separate seasonal factors—like the timing of spring break and Easter—from underlying trends, but fewer people flying is not a particularly bullish indicator. As price increases associated with tariffs start to chisel away at consumer balance sheets, travel numbers are likely to become meaningfully worse. A lot of us have been traveling considerably lately to compensate for lost travel during the pandemic. Some people may feel that elaborate travel arrangements are no longer as critical.

Gas Prices & Diesel Prices

Gas prices inched up to (a still pretty low) $3.27/gallon this week, down $0.53/gallon from the same week last year. Gas prices usually increase in spring as stations switch to summer blend, but low demand has kept oil (and gas) prices subdued over the past few months. This supports and contradicts some of what I said immediately above. Nonetheless, lower gas prices will not be enough to offset the inflationary impacts of tariffs to come over the next three months.

Diesel prices fell to $3.50/gallon due to weak demand for truck transportation and are at the lowest level since mid-December.

Tuesday

U.S. International Trade Balance

The U.S. trade deficit in goods and services soared in March as importers rushed to beat tariffs. While exports rose by $0.5 billion, imports rose by $17.8 billion, and that pushed the monthly deficit to $140.5 billion, by far the largest ever recorded.

But that’s good and services, and the U.S exports more services than we import. Looking at just goods, the monthly trade deficit expanded to $164 billion, the largest ever and up 65% since October. In some sense, that’s good news, because that expanded inventory represents a multi-week buffer between now and the major tariff impacts. So don’t expect the inflation data for May and June to be awful. It’s after that that things get tougher, unless of course there is a tweet that says the tariff stuff is going away.

By the way, I ate lunch yesterday with a Maryland congressperson. They told me that minimal 10% tariffs are here to stay and that the best other nations can do is negotiate down to that 10% baseline. Even 10% is inflationary and burdensome. Many people in my state (particularly on our Eastern Shore) shop in Delaware to avoid Maryland’s 6% sales tax.

Wednesday

Fed Interest Rate Decision