I'm a big fan of second chances. My adolescence - like some of yours, perhaps - was full of 'em. In fact, my high school transcripts screamed, "Don't let this kid anywhere near a college campus unless he's delivering someone a pizza." But thanks to a swift boot to the backside (both literal and figurative) courtesy of the United States Navy, I was able to put a disastrous false start behind me and, more or less, thrive in my chosen field once my head (and my backside) were realigned.

Maybe that's why I find what's going on these days so compelling: Markets and the economy, too, are rife with second chances. Take for example the second chance that "DOGE-meister" and "Cabinet-member-in-all-but-name" Elon Musk extended last week to federal employees who initially chose not to respond to DOGE's email request to detail their five most notable accomplishments or face termination. By extending these workers a second chance to respond to his email, Mr. Musk may, if you take his threat of summary judgement at face value, have helped forestall any immediate impact of DOGE-directed layoffs inside high-frequency data like the U.S. Department of Labor's (DOL) weekly jobless claim figures.

For what it's worth, last Thursday's initial jobless claim numbers did see a notable spike and now sit at 242,000 - a level they've reached only a dozen times or so in the last three years.¹ But given that the number of first-time filers who previously worked for the federal government was essentially unchanged from the prior week, less salacious things like terrible weather and the DOL's seasonal adjustment factor were far more likely to blame for this spike than Mr. Musk's cost-cutting efforts.

And then there was the second chance that President Trump extended to both Canada and Mexico a month ago by suspending implementation of newly-designed tariffs mere hours after announcing them. That was clearly intended to provide both countries a second chance to do things like enhance border security and stem the flow of illegal narcotics before the tariffs went into effect. Fast forward to last week, and it appears as if neither neighbor had made sufficient progress to earn them a third chance, because President Trump announced on Friday that the new tariffs would go into effect this week.

In this case, the line connecting unfulfilled second chances to tangible economic impact is far less obscure than it was between DOGE cuts and federal unemployment in the latter example. Businesses never seemed fully convinced that the one-month reprieve granted to Canada and Mexico was anything but temporary, because they appear to have loaded up on all sorts of stuff that will likely become suddenly more expensive when those new tariffs become real.

We know that (or at least suspect it) because January international trade data released on Friday showed a huge spike in imports of things like industrial supplies and consumer goods.² Tariff pre-buying almost certainly contributed to that, sending the amount of goods imported from abroad to $325 billion last month, the highest ever recorded and more than 200% higher than the monthly average in place since the early 1990s. That caused the U.S. trade deficit for goods to widen to its highest monthly total as well. Given how national accounts data like Gross Domestic Product (GDP) growth are calculated, that will undoubtedly toss a trade-grenade into first-quarter economic growth numbers when we get them in a few months.

But maybe the biggest second chance of all in recent days was the second chance afforded to AI enthusiasts to reassess their assumptions about the biggest investment theme since the dot.com era. Chipmaker Nvidia, which has become synonymous for all things AI, largely recovered from the punch in the gut administered by Chinese AI upstart DeepSeek at the end of January, as investors have had a chance to more fully digest the implications — some potentially quite positive — of having a new, possibly very low-cost competitor entering the AI model development space. But as of last week Nivida had nearly re-plumbed those DeepDepths as bears got a second chance to make their case when the company's most recent earnings release — delivered after last Wednesday's close — was largely interpreted as underwhelming.

It's hard to argue with the company's stellar record of growth and last week's earnings results were still pretty strong. Moreover, executives did a commendable job of explaining how DeepSeek might actually improve prospects for AI going forward. But when investors put a sky-high valuation on a company like they have with Nvidia, management's margin for error shrinks considerably and sometimes there is almost nothing they can say or do to pacify the skeptics. And like our neighbors to the north and south, last week's earnings progress wasn't seen as quite enough to justify the extension of another chance by those who hold sway, and the stock is once again trading near where it was when the DeepSeek skepticism was at its peak.

Finally, even the economy itself seems to be navel-gazing in such a way so as to provide a second chance for those who never fully trusted the soft-landing narrative to be proven right (or at least less-than-crazy.) But last week's litany of less-than-soft-landing data is worthy of a second look, including a decline in personal spending that mirrored very weak retail spending data for January and Walmart's weak guidance from a few weeks ago. That apparent erosion in the "spendiness" of the U.S. consumer led to a notable spike in the US savings rate — a metric that readers of last week's Perspective might recall is gaining credibility as a harbinger of future economic weakness.³ 

The rising savings rate is still nowhere close to levels that even the converted might consider to be recessionary, and other macro data from last week was decidedly more mixed. For example, the Federal Reserve Bank of Chicago's National Activity Index (CFNAI) declined overall but was closer to neutral than it was to collapse,⁴ and the various Fed regional manufacturing indexes that came across the wire last week were sufficiently mixed to prevent anyone from concluding confidently that manufacturing was either expanding robustly or in the process of re-inflecting lower.

But at least one bit of data from last week's catalog was far less ambiguous than that. The headline for The Conference Board's February update of its consumer confidence index was "Pessimism About the Future Returned,"⁵ and the index itself was driven to an eight-month low by a big drop in the future expectations component. That collapse left the forward-looking portion of the index at 72.9 - well below the 80.0 level that the survey authors consider consistent with economic recession.

And that leads us to our final "second chance" of the week. Detail-oriented readers may have noticed that this version of consumer confidence data is compiled by The Conference Board, who, you might also recall is responsible for publishing the Index of Leading Economic Indicators (LEI). As a reminder, as of last week the LEI was no longer flashing red — for perhaps the first time in two and a half years, The Conference Board's own modeling of its data was comfortably above levels that would indicate a recession was imminent, or even threatening to develop. 

But with consumers now having had their latest chance to weigh in, analysts responsible for that data might get a second chance to see whether or not that red lamp is still working.

What to watch this week

Welcome back to payrolls week (what, already?)! Watch Friday’s nonfarm payroll release for any hint at all that the labor market is weakening faster than the Federal Reserve Bank would prefer. If so, expect sentiment to swing back toward a more aggressive rate-cut schedule than the two or three cuts that are currently reflected in futures pricing data (which, for what it’s worth, is itself a significant upgrade from the one or two that markets were looking for a week ago). If not, expect the Fed to continue to bide its time for at least another meeting or two. And for those looking for insight to be found off the beaten path, pay attention to such minutiae inside Friday’s release as the size of the labor force, which is where any impact of declines in immigration might appear first. Notably, Friday’s data will coincide with a speech by Fed chair Jerome Powell where he will provide his (and his Fed’s) economic outlook, and be preceded by the Fed’s sometimes-interesting Beige Book on Wednesday.⁶

As always, the run-up to Friday’s payrolls week could be at least as interesting as the big event itself. In my view, it’s been true for quite a while that the catalog of layoff announcements compiled by outplacement firm Challenger, Gray & Christmas has the potential to inform a future view of labor to greater extent than actual payrolls data — particularly because businesses still seem reluctant to aggressively hire in the face of growing economic uncertainty. That means even a modest uptick in layoffs could have a bigger impact on unemployment than it ordinarily might, which gives this data an unusual amount of gravity.

Beyond payrolls, a batch of retailers is scheduled to report earnings this week, including Target (Tuesday), Costco (Thursday), and a dozen or so others scattered throughout the week. Given the sudden attention being paid to the U.S. consumer’s willingness and ability to continue to underwrite economic growth, each of these reports are potentially significant as a counterpoint to Walmart’s headline-grabbing report and disappointing guide a little over a week ago. For unique context, off-price retailers like Ross (Tuesday) and Burlington (Thursday) may be able to provide particularly important views.

Other potentially interesting releases will come in the form of final February Institute for Supply Management (ISM) and Purchasing Managers Indices (PMI) data for both manufacturing (Monday) and services (Wednesday). By now, though, the story there is well known: Manufacturing is on the up (at least for now,) and services on the wane. Pay attention, as always, for anecdotal evidence that cost pressures are continuing to build in both. But for a more differentiated view on the state of the productive economy, scan Thursday’s wholesale trade report for any sign that inventories are building and sitting idle in the wake of January’s import buying spree as detailed above.