Forget about GDP, tonight's non-farm payroll is what matters

The unexpected contraction of 0.3% in the U.S. GDP data for the first quarter is disappointing; however, this data has not fully reflected the profound impacts of Trump's tariff policies, federal government spending cuts, and immigration policies. The market is closely watching the non-farm payroll report for April, which will be released on Friday (tonight), as this will be the first key "hard data" since Trump announced the reciprocal tariff policy on April 2, and its importance is self-evident.

Wall Street analysts expect that the non-farm payrolls for April will add 133,000 jobs, which, although a decrease from previous months, still indicates a healthy state, with the unemployment rate remaining at 4.2%. According to previously released data from ADP, private sector employment only grew by 62,000, and ADP's predictions often differ significantly from actual data.

Bank of America analyst Michael Hartnett stated that as long as employment data remains resilient, optimistic expectations for lower tariffs, lower interest rates, and tax cuts could drive a market rebound and alleviate concerns about a U.S. economic recession.

Under Elon Musk's leadership, DOGE has fully initiated cost-cutting measures, while immigration deportation actions are also accelerating, leading to a significant reduction in the number of border crossings. In this context, if employment data shows weakness, it could provide strong arguments for Trump's critics; conversely, if the data is strong, it will at least silence critics in the short term.

The Impact of Tariffs on the Economy Has Not Been Fully Reflected

The first quarter GDP hardly reflects the true state of the U.S. economy. Analysts believe that although the GDP decreased by 0.3% year-on-year in the first quarter, this was mainly influenced by several statistical factors rather than a direct impact from Trump's policies.

A surge in imports is one of the key factors, as companies stockpiled goods in anticipation of tariffs, leading to a significant deduction of import data from GDP. Theoretically, this should be offset by an increase in inventory, but strangely, the data did not show this. S&P Global economist Ben Herzon estimates that without the assumptions from the Bureau of Economic Analysis, GDP could have actually contracted by 1.5% instead of 0.3%.

Some analyses point out that despite widespread discussions about tariffs, almost no tariff costs have truly been passed on to U.S. consumers. Retailers are currently striving to maintain price stability, perhaps because they hope Trump will make further concessions.

It can be speculated that the early implementation of tariffs and expectations for more tariffs in the future may suppress companies' willingness to hire. However, there have not yet been any obvious signs of this, as the number of unemployment insurance claims has remained at a low level.

Investors Bet on a Softer Stance from Trump

Bank of America’s Hartnett stated that investors are now betting that Trump will adopt a more market-friendly stance in the coming months, and if tonight's non-farm report shows resilience, concerns about a U.S. economic recession may further diminish.

Hartnett noted that market participants are betting on a scenario of "lower tariffs, lower interest rates, and lower taxes." A significant easing of financial conditions, combined with strong spending on artificial intelligence, will alleviate growth concerns, "as long as employment data does not collapse." U.S. stocks have rebounded in the past two weeks as the market optimistically believes that the U.S. will negotiate with major trading partners. However, weaker-than-expected economic data will keep market sentiment unstable