Keep an eye on developments in the U.S. economy
Most of the time, you can ignore monthly economic data – it rarely, if ever, changes trends in markets. But with Trump fiscal profligate ways, a huge global debt refinancing event coming in 2026/27 and threats to democracy itself, it probably now pays to keep a closer eye on how the U.S. economy is faring.
Could it be that the U.S. economy is slowing, even while inflation remains? It’s only one data point but the U.S. economy experienced a jolt of uncertainty this week as the May 2025 ADP Employment Change report revealed only 37,000 private sector jobs added compared to the consensus forecast of 114,000. It marked the weakest growth since March 2023. For those wanting to dig a little deeper, sector-specific data revealed Leisure & Hospitality led with 37,000 new jobs, followed by Financial Activities with 20,000 and Information with 8,000, while Construction added 6,000. However, Professional and Business Services shed 17,000 jobs, Education & Health lost 13,000, Trade, Transportation, & Utilities dropped 4,000, and Manufacturing declined by 3,000.
As is now expected by a president who floods social media hourly with meme-worthy pronouncements, Donald Trump criticised Federal Reserve Chair Jerome Powell, stating, “ADP NUMBER OUT!!! ‘Too Late’ Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!”
Meanwhile, Elon Musk warned of economic peril and fiscal profligacy, noting debt interest payments now consume 25 per cent of government revenue and could jeopardise social security, healthcare, and defence if deficit spending persists.
Compounding the economic unease, the May ISM Services Index contracted to 49.9, falling short of the expected 52.0 and down from 52.1 the previous month, signalling a recessionary trend in the services sector. New Orders plummeted 5.9 percentage points to 46.4, reflecting waning demand. However, the Employment Index rebounded to 50.7, indicating a return to expansion after two months of contraction. Inflation pressures intensified, with the Prices Paid Index surging to 68.7, a 3.6-point increase from April’s 65.1 and the highest since November 2022, driven by a 7.8-point rise over two months.
Understandably, investors responded with a flight to safety: bonds and precious metals gained ground, while oil declined, reflecting expectations of reduced economic activity. Again, these are trend-changing developments, but at some point, they could accumulate enough fear or nervousness that a change does occur.
Meanwhile, the fiscal outlook darkened further with insights into the Republican Party’s “One Big Beautiful Bill,” which features front-loaded tax cuts and back-loaded spending cuts, potentially leaving future administrations with a fiscal drag after 2029. A chart from the Congressional Budget Office (CBO) and Goldman Sachs highlighted a growing deficit, peaking in 2026 before spending cuts temper the impact from 2030 onward. Rep. Marjorie Taylor Greene expressed regret over voting for the bill, citing an unnoticed provision on pages 278-279 that suspends state AI regulation for 10 years, a move that has sparked controversy. I will write about this in a coming blog post.
Elsewhere, Japan’s economic challenges deepened as the Ministry of Finance announced a bond repurchase on June 5, 2025, amid a demographic crisis. Official data revealed that births in 2024 fell below 700,000 for the first time since 1899, marking a ninth consecutive year of decline, raising concerns about the nation’s future workforce and economic stability. Japan leads China towards the generational cliff.
As markets digest these developments, the debate over monetary policy and fiscal responsibility intensifies, with investors and policymakers bracing for potential rate cuts and heightened economic volatility.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
