Under Pressure

Discretionary Spending and GDP Weakness

Companies tied to discretionary spending—such as leisure travel, hotels, and restaurants, including value-oriented chains like McDonald’s—posted weak results, lowered outlooks, or withdrew guidance altogether. This coincided with a slew of headlines around this quarter’s soft GDP number (-0.3% versus 2.4% prior), which shouldn’t have been surprising. Much of the weakness was driven by heavy pre-buying from both companies and consumers ahead of expected tariffs, which inflated imports (a subtraction from GDP) and front-loaded consumer spending—though the latter still came in weaker than in recent quarters (1.2% versus 4% prior).

Jobs Report: Better Headline, Underlying Fragility

This morning’s jobs report beat expectations (177k versus 138k), with Transportation & Logistics showing strength—likely another ripple effect from the earlier pre-buying surge. Still, headline metrics this quarter are largely distorted by these front-loaded behaviors. The real story is the emerging signs of consumer stress: weakening sentiment (88 versus 92.9 prior), announced headcount reductions (DOGE, UPS, etc), and widespread cuts to discretionary spending by companies—all of which point to future pressure on employment.

Manufacturing vs. Services: Watching for a Shift

The Manufacturing PMI came in stronger than expected at 48.7 (vs. 47.9 consensus), but in a services-driven economy like the US, its significance is limited. More telling will be next week’s Services PMI, with consensus at 50.2—still signaling expansion. That seems optimistic, in my view, but we shall see.

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