P.M. Edition for April 11. In earnings calls today, executives warned that President Trump’s tariffs were sending the U.S. economy into the unknown, hurting consumers and businesses. WSJ Heard on the Street columnist Jonathan Weil joins to discuss how banks are gauging what’s ahead. Plus, results of the latest consumer sentiment survey show that Americans have a pessimistic view of the economy, with the highest expectations for unemployment and inflation in years. And small U.S. businesses are looking to be the biggest losers in Trump’s trade war. We hear from WSJ senior special writer Ruth Simon about how they are weathering higher costs from tariffs. Alex Ossola hosts. See How Government Spending Is Up Even as Musk Touts Savings Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the key economic warnings from U.S. banks?
U.S. consumer sentiment tanks and inflation expectations rise to their highest in more than 40 years. Plus, Wall Street sounds the alarm for economic volatility ahead because of President Trump's tariff policy. And small businesses might end up as the biggest losers of Trump's trade war.
It's like every day they wake up and it's a new reality that they're trying to adjust to.
It's Friday, April 11th. I'm Alex Osola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. The U.S. economy showed fresh signs of strain today. Consumer sentiment plunged further this month as recession fears built.
Chapter 2: How are consumer sentiments affecting the U.S. economy?
The University of Michigan survey, a closely watched index of consumer sentiment, nosedived to 50.8 in April from 57 last month. That was much lower than economists expected and is one of the weakest readings in the past decade. The share of Americans expecting unemployment to rise in the year ahead increased to the highest since 2009 —
and inflation expectations in the year ahead hit their highest rate since 1981. That uncertainty is hitting Wall Street, too. In earnings calls today, executives warned that President Trump's tariffs were sending the U.S. economy into the unknown and that the uncertainty was already hurting consumers and companies alike.
Chapter 3: What are banks monitoring for future economic stability?
For more on how banks are gauging what's ahead, I'm joined now by Heard on the Street columnist Jonathan Weil. Jonathan, what kinds of information are banks going to be keeping an eye on to get a sense of where things are headed?
The things they're going to be monitoring are the usual things banks monitor. Are borrowers more likely to default on their credit cards, on their loans? What's going to be happening to mergers and acquisitions and deal volumes? They're explicitly saying that they think that those will be going down. They're expecting a lot more volatility. That has a lot of trade-offs.
That can be really good if you run a trading desk. Not so good if the volatility goes so berserk that nobody wants to trade anything anymore.
And what are these banks expecting for their own finances in the next quarter?
Well, the guidance that they have given is much more cautious than it was, say, three months ago. Morgan Stanley today, they're generally bullish. That's an investment bank. It's a different type of business model than Wells Fargo or JP Morgan.
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Chapter 4: How are banks preparing for potential credit losses?
JP Morgan and Morgan Stanley said they boosted provisions for possible credit losses as consumers and businesses may be unable to pay their loans. How significant is that?
One of the things that JP Morgan said, their CFO on their earnings call today, said the way these things are all about mathematical models, it's not just looking at a loan to see if that particular loan is more or less likely to default. They said that they haven't seen, at least through the first quarter, hadn't seen any deterioration in the credit quality, broadly speaking, of their loan book.
So we've seen some uptick in the credit losses at some of these banks. But the really big move, if things went haywire, would be showing up in the second quarter. And the answer they get about the outlook isn't necessarily very satisfying because they're in the same boat that we are. They have much more data that they can look at. But the conclusion is the same. We don't know.
All right. I guess we'll have to wait and see then. That was Heard on the Street columnist Jonathan Weil. Thank you, Jonathan.
Thank you.
Despite that cloudy future outlook, the volatility wasn't all bad for Wall Street. Big banks reported a pretty good first quarter today. Trading desks racked up revenue as clients looked to exit or buy new investments during earlier market swings, gains that likely got even bigger in the past week for the banks. In the first quarter of the year, J.P.
Morgan brought in a record $3.8 billion in equities trading revenue. At Morgan Stanley, equities revenue was up 45% to more than $4 billion. Recession warnings didn't stop U.S. stocks from ending one of their most tumultuous weeks in years on an upswing. The Dow rose about 1.6 percent, the S&P 500 notched gains of roughly 1.8 percent, and the Nasdaq closed about 2 percent higher.
For a better understanding of what tariffs mean for the stock and bond markets, you can listen to a bonus episode of WSJ's Take on the Week coming out today. And the regular episode of Take on the Week will be out on Sunday. Chris Krause, a managing director and portfolio manager at PIMCO, one of the world's largest bond managers, will join the podcast with a pulse check of consumer health.
Coming up, small companies account for one-third of U.S. imports. What happens if they can't absorb the higher costs from Trump's tariffs? That's after the break. Businesses of all sizes are struggling with President Trump's new tariff regime. But small U.S. businesses are looking to be the biggest losers.
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Chapter 5: What impact are tariffs having on small U.S. businesses?
That was WSJ Senior Special Writer Ruth Simon. Thank you, Ruth. It's a pleasure. President Trump has promised that tariffs would lead to a renaissance in American manufacturing, that they'll bring good-paying jobs to U.S. communities. I'm joined now by Lauren Weber, who covers workplace issues and employment for the journal. Lauren, do tariffs actually do that?
So history tells us no. And for that, we can look at Trump's first term, where he also imposed tariffs on China and some other countries. Manufacturing jobs did not grow. And we actually lost jobs that time around, mainly because other countries put on retaliatory tariffs, largely on agricultural products. So we lost a lot of agricultural jobs.
Those were partially offset by subsidies that the government paid to farmers to try to keep people employed. But no, manufacturing jobs were not created.
Are there certain sectors that are potentially more likely to move their operations to the U.S. ?
Yeah, we've already seen some announcements that pharmaceutical makers are bringing some production back to the U.S. Products that are a little bit less complicated than, let's say, a car or an iPhone, we will see some of that return.
Now, it's possible some of those plans might have been in process long before tariffs were announced, mainly because the pandemic was such a wake-up call to companies. They needed to have supply chains where goods and raw materials were would be more available closer to the United States.
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Chapter 6: Why are small businesses more vulnerable to tariffs than large corporations?
Like you mentioned, a number of companies have already committed to building new factories in the U.S. Does the U.S. have enough workers and workers with the right skills to staff those factories?
Well, this is the rub, and this is one of the confusing things about this plan. We already have labor shortages for manufacturing jobs, and the jobs are more complex than they used to be. So you actually have to have more advanced skills. Often they involve... some amount of computer knowledge or technical skills. So the answer is no, we don't have enough workers already.
Complicating that even further is the fact that manufacturers in the U.S. have long relied on an immigrant workforce. That's also becoming more challenging as border security has ramped up. Fewer immigrants are coming into this country. Employers have fewer workers to hire from.
So what can companies do about this then?
In many ways, the solution is something that's been going on for decades for all kinds of reasons, and that is automation. So the kinds of factories that are being built or refurbished in the U.S. these days have a lot more automation than the ones that left this country in the 1970s, 1980s, 90s, when outsourcing was a big trend.
What that means is the factories need fewer workers than they would have in the past.
That was WSJ reporter Lauren Weber. Thank you, Lauren.
Thanks for having me.
After a stint as Trump's first buddy, Elon Musk seems to be developing a rift with the president. In recent days, Musk has made veiled criticisms of Trump's trade agenda and called Peter Navarro, the president's top trade advisor, a moron.
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