Macro & Market Musings are weekly insights on Growth, Inflation, Policy and Looking Ahead from Annex Wealth Management’s Chief Economist, Brian Jacobsen. Brian, a frequent contributor on CNBC and Fox Business News, hosts regular updates on the economy and markets. Check our events page for Brian’s next live event.

Growth: Meeting In The Middle?

While it was great to see the Institute of Supply Management’s Manufacturing index move into expansion after 26 months of contraction, it would have been nice if the Services index didn’t soften like it did. Instead of services pulling up manufacturing or manufacturing dragging down services, it looks like–at least for now–they may be meeting in the middle. The risk is that manufacturing’s renewal is a head fake and services slip into contraction.

Inflation: Fear-flation?

Reading comments on social media is risky, but business survey comments, like those in the ISM surveys, are insightful. Recent surveys show businesses are already trying to push prices higher due to tariff fears. The dominant media narrative is that “tariffs are coming and it’s inflationary,” leading consumers to accept price hikes as inevitable. This collective acceptance drove COVID-era inflation. Hopefully, this time consumers will push back faster and harder on price hikes. Profit margins and currencies can adjust instead. There’s nothing inevitable about tariff-induced inflation.

Policy: A Long And Winding Road

While tariffs were dominating the headlines, what happens with the Tax Cuts and Jobs Act (TCJA) is equally important. By some estimates, the blanket tariffs threatened would cost the average household $1,200 in price increases, but if the TCJA sunsets as scheduled, that could cost the average household nearly double that in higher taxes. There is little room for error in crafting a deal that can pass the House, the Senate, and be signed by the President. When there is little room for error, it’s reasonable to expect that the process can take a while.

Looking ahead: Everyone Else’s Turn?

Over the last two years, earnings growth and stock returns were dominated by a select few companies. Now, earnings and returns are both broadening. The path ahead may be punctuated with pockets of volatility, but just when everyone has thrown in the towel on diversification and balance, those may be coming back into style again.