In my experience the ADP report rarely provides much of a read through to the Jobs report on Friday, nonetheless ADP employment came in light at +37K. Offering a conflicting signal the ISM Services employment component increased slightly, though remains relatively weak. Overall the ISM services index fell into contraction for the first time in nearly a year, the reason, you guessed it, uncertainty caused by tariffs.
Nevertheless the S&P was ever so slightly up to 5,971.
Guesses Followed By Excuses
Your guess for the read through to Jobs on Friday is as good as mine. And of course no matter the number we’re likely to hear some form of narrative as to how it does or doesn’t yet show the impact of tariffs, or the impact of immigration, DOGE, or whatever else.
No matter the outcome of Friday’s jobs report some economist will be sure come up with some excuse as to why their job guess was wrong.
We’re A Service Based Economy
In the meantime the weakness ISM showed in the service sector was enough to send bond yields lower, with the 2Y treasury now at 3.89% and the 10Y yield falling to 4.37%, both down solidly from the day prior.
“Uncertainty Remains High”
Says Tiff Maclen, Bank of Canada governor, as the BoC held their policy rate at 2.75%. I’m pretty sure what all economies need is to hear more officials stating the obvious.
We’ll get to hear from the ECB today, I think I’m willing to bet that “uncertainty” makes an appearance.
Maybe Rules Solve Some of This
The Hoover Institute recently honored John Taylor. Every so often some central banker or media outlook remembers the Taylor Rule. Economist John Cochrane reported that Fed Governor Waller spoke about the possible benefits of having rules as part of the policy toolkit. With so much tension and pressure on Central Banks facing criticism in some circles that they are being too slow to cut rates and pressure from others not to take their eye of inflation, maybe they can fall back to rules as a way to help alleviate the tension.
Because when vibes fail, math has to pick up the slack.
As Cochrane summarized:
“The Fed wants people now to believe it will be tough on inflation in the future, so that today’s inflation-output tradeoff is favorable. But once the future comes, the Fed will want to goose the economy with some inflation. People know that, so they expect inflation and the Fed face a poor tradeoff today. Somehow the Fed has to commit today to do things it will not want to do in the future. A rule helps to do that. That is special about the Fed.”
Waller talking about Taylor rules isn’t new, he did it in this BIS speech in October 2024 and we talked about his thoughts on Taylor Rules back in March 2024.
Uncertainty Is The New Certainty
The Fed Beige book showed elevated uncertainty across districts, so you might as well spend the rest of the day worrying about tariffs, debt levels, geopolitics, AI and whatever bothers you.
Since we can’t solve all our troubles, let's just read some XTOD’s.
XTOD’s:
XTOD: The Senate Banking Committee plans to eliminate all mandatory funding for the Consumer Financial Protection Bureau and restrict the pay of many Federal Reserve employees
XTOD: The Beige Book just put the stamp of approval on the recession call. In the past six weeks, the economy has shifted from “little changed” to “declined slightly”. There you have it. Fully 75% of the country is now in either contraction or stagnation mode, up from around 50% in the April 23rd Book. I know – how does that comport with a +4.6% real GDP growth forecast for Q2 out of the Atlanta Fed? The answer: it’s not too difficult to generate the illusion of GDP growth when imports fall out of bed as they did in April. Looking at the sequential monthly pattern of the “hard” data, the economy is losing momentum at a fast clip.
XTOD: Finance has four simple rules: maintain a clear mind, figure out asymmetries, detect circularities, and never talk to idiots.
XTOD: Acquiring knowledge is easy, the hard part is knowing what to apply and when.
That’s why all true learning is “on the job.” Life is lived in the arena.
XTOD: Confidence is king in our game. To get the most out of EVERY player on our roster, we need to find ways to help them ALL believe in themselves. How we treat them, communicate with them, teach them and the relationships we build with them all play a major role. Never forget, this is THEIR game, we are here to help, teach, mentor and support.
https://x.com/business/status/1930431059415482589
https://x.com/EconguyRosie/status/1930350782089703623
https://x.com/nntaleb/status/1930267765488673260
https://x.com/naval/status/1930058059172458665
https://x.com/BaseballDudes48/status/1930225993253269527
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