Everyday Economics: Trade war escalation fuels stagflation fears
By Orphe Divounguy | The Center Square contributor
(The Center Square) – Economic storm clouds are gathering as trade tensions escalate.
The ISM Manufacturing Prices Index surged to 69.40 in March from 62.40 in February – an 11.2% increase – while the services sector’s Prices Index fell only slightly by 2.7%. These readings signal that inflation pressures could remain elevated even as the broader economy faces headwinds. Meanwhile, significant declines on Wall Street could trigger a negative wealth effect, further dampening consumer spending.
Despite a stronger-than-expected jobs report on the surface, underlying labor market weaknesses persist: hiring rates are at their lowest since 2014, the three‐month average employment gain fell to 152,000 from 184,000, the unemployment rate ticked up to 4.2%, and the share of prime working-age Americans employed has dropped to its lowest level since November.
This Week’s Economic Reports
Key events this week include the Consumer Price Index and Producer Price Index releases. As businesses rushed to get ahead of an escalating trade war, the increase in the Price component of the ISM manufacturing survey points to persistent price pressures. At the same time, consumer and business sentiment are expected to continue declining, fueling recession fears.
Implications for the Fed
The Federal Reserve now faces a dilemma. On one hand, inflation remains elevated and could accelerate further – JPMorgan, Goldman Sachs and others have revised their inflation forecasts upward. On the other hand, deteriorating labor market conditions present growing concerns.
With this dual challenge, the Fed appears poised to maintain its wait-and-see approach. The central bank is balancing competing priorities while closely monitoring how escalating trade tensions will weigh on economic activity.
Orphe Divounguy is the co-host of The Center Square’s Everyday Economics podcast.
