Global Insights Center: Monthly Newsletter

For this update, I want to share with you our recently published research reports, which cover trends and the outlook for the  US economy,  labor and inflation, and  construction. You can click the hyperlinks in the previous sentence to find the reports or click the links further below.

 

In the first quarter, the US economy, or specifically Gross Domestic Product (GDP), observed a -0.5% contraction relative to the quarter before. From our perspective, the decline was not surprising because in the run-up we were observing a significant increase in imports as businesses sought to get ahead of tariffs. And an increase in imports typically detracts from economic growth. Furthermore, consumer spending weakened, especially for discretionary goods. This may be attributed to growing concerns amongst households with respect to the economic outlook. It will be important to monitor how consumption unfolds. If tariffs begin to raise the price of goods, and consumption pulls back further as a result, then this could become a headwind for economic growth going forward too.

 

Despite the first quarter contraction, labor conditions remain in a generally healthy position for now. It is taking longer to find a job, but the unemployment rate remains relatively moderate in the low 4.0% range. The one issue that remains, though, is ongoing pressure on wage inflation, which is still close to 4.0%. Overall inflation, or the Consumer Price Index (CPI), has been declining over the past few months and is now around 2.4%. This is close to the Federal Reserve’s target of 2.0%, and otherwise a good development. However, there could be some upward pressure on inflation over the next few months as tariffs start to filter through the economy and potentially causing the price of goods to rise. For that though, we’ll need to see how prices are affected over the summer.

 

And on the construction side, residential construction spending is flat to slightly weaker. This is in part due to elevated mortgage rates, coupled with housing affordability issues. While housing prices continue to rise, the pace of growth is starting to slow slightly, likely due to the slowdown in construction activity and housing starts. Nonresidential construction spending growth has also been slowing. But as before, there are pockets of strength, namely data centers and semiconductor facilities. Against this, we are starting to see some weakness in infrastructure spending growth.

 

But for a comprehensive review, please click on the report links above or below.

 

On the geopolitical side, the major development this past month was the military conflict between Isreal and Iran, which the US joined too. The stated objective was to slow or end Iran’s nuclear program. We feel there are a few important points to consider with respect to the conflict.

 

First, heading into the events, Iran was at its weakest. Historically, Iran has leveraged and activated proxy groups in the region as a means of deterrence, many of which are either weakened or no longer exist. This inhibited the ability of Iran to use these proxies to foment counteracts in the region.

 

Second, Saudi Arabia and Iran often vie for dominance of the Middle East. Thus, a weakened Iran furthers Saudi Arabia’s interest.

 

Third, the recent events might incentivize other nations to seek out nuclear weapons programs. We often talk about the fractured world order and rise of new power center. Against that backdrop, some countries may determine that having a nuclear weapon is essential to protecting their sovereignty. Examples include Ukraine, Libya, and Iran, which saw invasions or regime changes after giving up or not having nuclear weapons, while North Korea, with its active nuclear weapons, has maintained its regime despite being a threat to Japan, South Korea, and the US. Furthermore, India and Pakistan have nuclear weapons, which is seen as affecting their ability to move up the escalation ladder in a conflict. Some nations may conclude they too need nuclear weapons to insulate themselves as the world order shifts.