Jeffrey Schulze
In the recent ‘Anatomy of a recession’ analysis Jeff Schulze, Director and Head of Economic and Market Strategy at ClearBridge Investments, noted that the probability of US consumer strength overpowering trade-related headwinds appears lower in 2025.
While the labour market remains healthy with monthly job creation averaging 144k so far in 2025, this pales in comparison to the red-hot labour market of 2022 when monthly job creation averaged 380k (and 603k in 2021).
“Further cooling in the labour market could prove problematic for the US economy given the fact that labour income represents the majority of spending power for most Americans. Importantly, consumers appear to have already begun to retrench in the face of elevated uncertainty.
“We continue to believe that Initial Jobless Claims are the single most important economic indicator to watch – our canary in the coalmine – in determining the path of the economy. So far, claims have held up extremely well in the weeks following ‘Liberation Day’, and we believe the late-April jump is a seasonal adjustment issue related to the timing of spring break in New York that has cropped up over the past few years but will likely reverse in early May,” added Schulze.
However, slipping profit margins means there is less of a buffer should the labour market weaken or demand slow in the coming months. “This leads us to believe that the risk-reward trade off facing both the economy and financial markets skews to the downside at present,” he said.
A positive change in trade policy or a renewed focus from the Trump administration on its supply-side agenda (deregulation, tax cuts/fiscal support) could shift the skew to be more favourable. However, prompt action is likely needed in order to counteract the negative (and building) effects of elevated uncertainty and margin pressure.
“As a result, we believe that a focus on higher-quality companies with proven track records managing through periods of turmoil such as dividend growers should continue to benefit investors.
“Notably, companies that have been able to consistently raise their dividends recently closed one of the largest 12-month performance gaps witnessed in the last 30 years relative to the S&P 500. Following similar periods of underperformance in the late 1990s and early 2020s, dividend growers then went on to outperform the S&P 500 in subsequent years.”
By Jeff Schulze, Director and Head of Economic and Market Strategy
