Yesterday, the market radar highlighted that the upcoming employment data
would likely become a key catalyst for market movement.
Below is our assessment prior to the release of the employment report and
the broader implications for markets and the economic system.
Labor Market: Cooling but Still Stable
February employment data appears to confirm a gradual cooling of the labor
market, although certain sectors remain resilient.
The sharp rise in research and development costs has already forced some
major companies to anticipate significant workforce reductions.
Oracle, for example, has publicly discussed potential employment cuts
linked to rising technology investment costs.
The unemployment rate, currently around 4.3–4.4%, shows no meaningful
structural change. It is important to remember that total sector
weekly earnings growth — one of the most relevant indicators across the
economy — is strongly conditioned by the number of employed workers.
A significant decline in employment would therefore directly affect the
first support pillar of the economic system: income generation and
consumption.
Wages and Real Earnings
Hourly and weekly earnings increased by approximately +0.3% month-over-month,
broadly in line with the most recent CPI data. In real terms, this means
there is little or no effective wage growth.
However, labor costs continue to rise structurally, currently running at
roughly 3.6% annually. This trend increasingly pushes companies toward
globalized supply chains, particularly for medium-to-low value-added and
labor-intensive production.
The key point remains that average annual earnings — both at the individual
level and across sectors — remain positive in real terms, typically between
+1% and +2–2.5% on a yearly basis, although the trend is gradually softening.
Initial Market Reaction vs Structural Indicators
The February employment report may initially disappoint markets.
However, it is unlikely to be the decisive indicator for overall market
direction.
Retail sales historically tend to soften in February following the
stronger January consumption period, which must be considered when
evaluating short-term economic data.
The Two Key System Drivers
1. Inflation
Inflationary pressure continues to be supported by several sectors.
Energy prices — particularly gasoline and electricity — remain a
significant contributor.
Some moderation may come from declining mortgage rates, which affect the
shelter component of CPI. However, other sectors such as healthcare and
medical services continue to experience price pressure due to rising
producer costs.
Tariff-driven inflation is currently limited to specific sectors but is
expected to broaden over time.
A February CPI reading of approximately +0.3% month-over-month
(around 3.6% annually) would effectively eliminate the possibility of
near-term rate cuts.
2. Treasury Deficit and Fiscal Pressure
Fiscal dynamics also remain a key structural variable. Military operations,
geopolitical commitments, and defense expenditures can add significant
pressure to the federal budget.
According to estimates published by the Center for Strategic and
International Studies, the first 100 hours of the military campaign
referred to as Operation Epic Fury cost approximately
$3.7 billion, or roughly $890 million per day.
A large portion of these expenses remains unfunded and could require
additional congressional appropriations. If a campaign were to last
approximately eight weeks, total costs could reach $44–50 billion.
Higher customs duties could potentially offset some of these costs.
Otherwise, additional debt issuance would be required, likely at
current or slightly higher interest rates.
Market Logic vs Economic System
For the moment, financial markets appear to operate according to
dynamics that are partially detached from the underlying economic
system.
Large corporations and market leaders increasingly depend on financial
performance and speculative spin-offs to sustain profitability.
This behavior is driven by several structural pressures:
- Rapid increases in R&D investment costs
- Moderate real growth in weekly earnings, which favors lower-price consumption
- Cooling economic activity in Asia and Europe, slowing export growth
For now, market logic continues to dominate price behavior.
However, the economic system ultimately imposes its constraints.
In the long run, markets and the real economy must converge.
The adjustment process may resemble a prolonged war of economic
resistance — one that affects not only financial markets but also
the long-term development of Western economies.