US Economy: Weekly Commentary – March 10, 2025.
US Market Review
Treasury yields diverged as the yield curve steepened. Equities declined, with small-caps hit hardest. The dollar weakened, and oil fell on supply concerns, while gold and Bitcoin rose.

Long-dated Treasury yields climbed, while short-dated yields declined, leading to a steepening of the US yield curve as growth risks intensified with the implementation of new tariffs. The yield spread between US and German 10-year bonds narrowed to its lowest level since 2023. Meanwhile, 2-year Treasury yields briefly fell below 4% for the first time since October but ended the week slightly higher.

Equity markets experienced significant declines, with small-cap and micro-cap stocks bearing the brunt of the sell-off, down 4.08% and 5.01%, respectively. Large-cap stocks retreated 3%, while the "Magnificent 7" fell 4.60%, contributing to a more than 3.5% drop in the Nasdaq 100. All sectors ended the week in negative territory, with financials and consumer discretionary stocks leading the declines.

The US dollar tumbled 4.49% against the euro. Crude oil (WTI) dropped 4.15%, pressured by OPEC+’s April production increase, which expanded supply and weighed on prices. Uncertainty over US tariffs on Canada, Mexico, and China heightened fears of economic slowdowns, potentially dampening crude demand. Concerns over a broader North American slowdown and negative market sentiment accelerated oil’s decline, pushing WTI to its lowest levels since 2021. Meanwhile, gold gained 1.76%, extending its rally, while Bitcoin advanced over 2%.
US Market Views Synopsis
U.S. job growth slowed, full-time jobs plunged, part-time surged, and government cuts loom. Manufacturing contracted amid tariff uncertainties, while service sector growth weakened, pressured by rising costs and economic uncertainty.

The U.S. labour market softened in February, with non-farm payrolls rising by 151,000, below the 160,000 consensus, and downward revisions to prior months. The unemployment rate edged up to 4.1%, while average weekly hours remained subdued at 34.1. Wage growth aligned with expectations at +0.3% MoM and +4.0% YoY. However, job quality remains a concern, as full-time employment fell by 1.2 million, partially offsetting January’s surge, while part-time jobs rose by 610,000. Hiring in high-value sectors such as technology, construction, and manufacturing remains weak, while DOGE-driven fiscal tightening has led to a 10,000-job drop in federal employment. With inflationary pressures persisting, the Fed is expected to hold rates steady. Meanwhile, the U.S. manufacturing sector faces contraction due to tariff uncertainties, while service sector growth slowed, with rising costs limiting price hikes. Ongoing concerns over tariffs and federal budget constraints continue to weigh on business sentiment, likely keeping economic activity subdued.
Labour Market
U.S. job growth slowed, full-time jobs plunged, part-time surged, and government cuts loom, raising concerns over job quality and economic resilience.

The U.S. labour market exhibited signs of softening in February, with non-farm payrolls increasing by 151,000, falling short of the 160,000 consensus estimate and accompanied by downward revisions to previous months. The unemployment rate edged up to 4.1%, while average weekly hours remained subdued at 34.1, highlighting ongoing labour market fragility. Wage growth aligned with expectations at +0.3% MoM and +4.0% YoY. However, job quality remains a key concern, as full-time employment declined by 1.2 million, partially offsetting January’s near-record 2.4 million surge (post-revisions), while part-time jobs rose by 610,000. Since January 2023, only 13% of job creation has occurred outside leisure and hospitality, government, and private education and healthcare—sectors, typically characterized by lower wages, job insecurity, and a higher prevalence of part-time roles. In contrast, hiring in high-value sectors such as technology, construction, manufacturing, business services, and transport & logistics has remained weak. The Department for Government Efficiency’s (DOGE) fiscal consolidation efforts have begun weighing on employment, with federal payrolls contracting by 10,000—the steepest decline since mid-2022—while private sector hiring grew by 140,000, led by gains in trade & transport (+21,000) and financial services (+21,000). Notably, the leisure and hospitality sector posted its second consecutive monthly contraction, likely due to adverse weather conditions.

Given these data and the resurgence of inflation, we expect the Fed to maintain its current policy stance and hold rates steady. Additionally, as DOGE-driven fiscal tightening accelerates, rising federal job losses and potential cutbacks in private contractors dependent on government spending could further strain labour market conditions.
Business Activity
The U.S. manufacturing sector shows contraction signs due to tariff uncertainties, while the service sector experiences slowed growth. Employment improves, but rising costs and competitive pressures limit price hikes.

The U.S. manufacturing sector has shown signs of concern, as the latest ISM report highlights significant declines in new orders and employment, both of which have entered contraction territory. The ISM manufacturing index decreased from 50.9 in January to 50.3 in February, falling short of expectations, while construction spending in January declined by 0.2%, slightly worse than the anticipated 0.1% decrease. These underperforming data points suggest mounting uncertainty surrounding tariffs, which appear to be influencing manufacturers' decisions, particularly with regard to pricing strategies. Although production growth remains modest, imports have grown at a slow pace, and both inventories and customer inventories are contracting. The ongoing uncertainty over tariff impositions, partly driven by President Trump’s trade proposals, is contributing to an environment of risk and caution in the manufacturing sector, a trend likely to continue until clearer trade policies are established.

In the services sector, growth continued but at a slower pace in February. The Services PMI registered 53.5, a slight increase from January’s 52.8, signalling expansion for the 57th consecutive month. However, the growth rate was moderated by weaker demand, with concerns over tariffs and federal budget uncertainties weighing on business sentiment. Employment in the sector improved, with the Employment Index rising to 53.9, marking the fifth consecutive month of expansion. Input costs, particularly for labour and materials, continued to rise, though competitive pressures limited firms’ ability to pass on these increases to customers, resulting in only modest price hikes. Despite these challenges, the sector remains in expansion territory, with fourteen industries reporting growth in February.

We expect that business activity, particularly in manufacturing, will remain weak due to concerns over, and the lack of clarity regarding, the tariffs imposed by Trump.
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