EMPLOYMENT
The U.S. economy added 151,000 jobs in February, slightly below the anticipated 160,000 increase. The unemployment rate rose from 4.0% to 4.1% as labor force participation dropped from 62.6% to 62.4%. Average hourly earnings rose 0.3% for the month and are up 4.0% year-over-year. The average workweek remained steady at 34.1 hours.
Our Take: Economic uncertainty seems to be weighing on employment, as job creation early in 2025 has cooled somewhat from 2024 levels. While the jobs market has not completely rolled over, continued uncertainty could lead to further declines. For now, the Fed is likely to continue their “wait-and-see” approach regarding rates. However, should employment weakness accelerate, the Fed may be forced into the unenviable position of needing to decide whether it is more important to combat a weak economy or persistent inflation.
TARIFFS
The Trump administration imposed broad-based tariffs on China, Mexico and Canada that went into effect this week, but then exempted autos and later all goods covered under the USMCA until April 2. Markets reacted negatively to the implementation and then recovered slightly on the exemption.
Our Take: The threatened and implemented and then exempted tariffs are increasing uncertainty. The extent to which tariffs and protectionism are an end goal versus more of a negotiating tactic to achieve other goals is becoming more unclear. Both markets and businesses are likely to react unfavorably to this level of uncertainty.
MUNICIPALS
California Congressman Kevin Kiley formally requested an FBI investigation into the California high-speed rail project. Representative Kiley cited missed deadlines and cost overruns as reasons for the investigation. Last month, the Trump administration announced an investigation into the project and the possibility of the withdrawal of $4 billion in federal funding after the Biden administration had provided $3 billion of funding for the project in 2023. Fresno’s Republican Mayor Jerry Dyer has indicated that he has concerns about the delays and costs but continues to support high-speed rail. In 2008, the California High-Speed Rail Authority estimated that the project would cost $33 billion, with service starting in 2020. Current cost estimates have reached $89 billion to $128 billion, and only 119 of 776 miles of railroad construction has started according to Bloomberg.
Our Take: The California rail project highlights how political risk can affect large, multi-year infrastructure projects. Similar scenarios are playing out in other municipal sectors such as lease renewals for government buildings. These risks are heightened in today’s polarized political environment and must be considered when investing in municipal debt.