Over the past week and half I’ve been travelling in America, starting with Chicago, then Omaha and finally New York. I’ve met many clients and attended various financial events, including the Berkshire Hathaway meeting (which I wrote up here), Neudata data conference in NYC (which I’ll write up shortly) and an IAQF/Thalesians quant event. I’ll try to articulate my takeaways from a markets’ perspective from the many conversations I’ve had during my trip. Admittedly, by their nature these takeaways are a collection of anecdotes, with all the caveats that this has. Indeed, this contrasts to actual data (and as a quant, data is important), but I hope this article will nevertheless provide something to muse over in terms both the growth and inflation outlook.
The growth outlook: To tariff or not to tariff
Politics can impact the perception of economic matters. One example is looking at the split in the University of Michigan responses based on party affiliation, which has been flagged by many market participants. However, in terms of the tariff outlook, the main consensus from the discussions I had was of uncertainty, regardless of political persuasion. The feeling was that even if tariffs are totally repealed, which at time of writing seems unlikely, the uncertainly caused still provided a downside risk for growth.
One part of the growth puzzle, which has attracted a lot of news coverage in recent weeks has been the number of transatlantic visitors to the USA (eg. FT: Airlines warn of weakening demand for US travel among European tourists – 30 Apr 2025). It was difficult to see this purely from the flights I took. All my flights were entirely full whether they were transatlantic flights or internal US flights. I did, however, hear anecdotes about cutting back spending for business travel.
For Turnleaf Analytics’ own growth models, we have a contrasting outlook on growth in the US. Our ISM manufacturing forecast for the coming year is below 50, whereas our non-manufacturing model is fairly robust above 50 and rising slightly over the same period. Typically, you interpret ISM readings of above 50 as expansionary, whilst those below 50 tend to be viewed as signs of contraction.
The inflation outlook: higher, but less than the market expects
On inflation, I heard anecdotes of receiving warnings of subsequent based prices rises related to tariffs. Purely from my own observations, it did seem that visiting the USA was proving more expensive than my last visit in the previous year. I can certainly say that burgers certainly haven’t got any cheaper over the past year! However, are tariffs the entire story when it comes to inflation?
The difficulty with inflation is that there isn’t a single thing driving it, even though it can be tempting to cite a single factor and use that as a magic wand to come up with a view. Instead, it’s an amalgamation of many different factors, based on the supply and demand of goods and services, alongside a monetary channel. Any tariff-based upward impact, needs to be balanced from an impact from other factors, such as the fall in crude, as well as from a lack of demand, which will both be downside factors.
Indeed, that’s why we end up scouring for so many relevant data sources as inputs into our inflation forecasting models. Purely on the subject of tariffs, whilst it might be difficult to add as factor to adjust the model, we do have many inputs which are reflective of tariffs, whether they are shipping costs, Los Angeles port arrivals, trade uncertainty indices etc. Indeed, we talked about this point in more detail at Macroeconomic Insights: Tariff Reprieves and Market Uncertainty – Implications for Inflation and Growth – 15 Apr 2025).
In terms of our own inflation forecasting models, we are indeed expecting a rise in inflation in the coming year, although it should be noted that we are currently below the inflation fixings market in this respect. This comes in contrast to late last year before the US presidential election, where we were above the inflation fixings market. The market quickly adjusted its view at the time and came to us.
Whatever the outlook with inflation whether you take the market view or own models, it looks likely to be above 3 percent for much of the coming year and this puts the Fed in a difficult bind.
The need for (data) speed
The uncertainly being thrown up by the tariffs (and subsequent market volatility) has resulted in investors wanting faster and more granular insights, and the subject did come up at the Neudata data conference in NYC. Indeed, we’ve responded at Turnleaf Analytics by increasing the frequency of many of our forecasts. For example, in the US, we are now updating our inflation forecasts for one of our models on a daily basis.
Conclusion
It was somewhat difficult to find anyone who was bullish on the US economy during our various discussions. On inflation the outlook from market participants was also for a rise from our discussions. Our inflation forecasting models do think the market is on the whole a bit too pessimistic on that front, expecting the rise to be less pronounced.
One last anecdote…
I started my career at Lehman Brothers nearly twenty years ago. Of course, the firm is no more. However, the community of folks who worked there have spread throughout the markets and many are also now retired. I heard an interesting anecdote, which is in no way tradable (!), during my trip, from a veteran who had worked there in the 1970s (and he did say it was fine for me to post it publicly).
During the interview process at Lehman, he met with Lew Glucksman, who was at the time one of the most senior people in the firm. He pointed to the trading floor, noting, that one of the people there would likely lead the firm one day (and I would assume Dick Fuld, the last CEO would be one of those folks sitting there). When asked what he was most worried about, he replied, the mortgage business…
How the cookie crumbles…
And if you’re wondering the photo at the top is from Levain bakery on the Upper West Side.. my cookie based research does suggest they have the best cookies in New York!