Taking Businesses’ Temperature Post-‘Liberation Day’

For weeks, commentators we follow have repeatedly pondered how US President Donald Trump’s “Liberation Day” tariffs will affect commerce. Conventional wisdom says the hit will be very, very bad—partly because businesses globally pulled forward activity just in case, but mostly because tariffs tend to discourage trade and, therefore, production.^[i] In our view, stocks’ rapid decline in Liberation Day’s aftermath looked like markets pricing in the worst-case scenario of steep tariffs whacking commerce globally.^[ii] Yet as data start trickling in, reality appears to be shaping up better than many outlets projected.

The data to which we refer are flash purchasing managers’ indexes (PMIs) for April. PMIs, for those of you who don’t share our data devotion, are business surveys. They don’t report actual output, but they ask companies whether results across a range of indicators (output, new orders, employment, costs, etc.) was the same, better or worse than the previous month. The survey provider—in this case, S&P Global—computes this into index levels. Readings over 50 indicate more than half of responding firms reported expansion, whilst under 50 means contraction. So if tariffs brought an immediate, major impact, we would presume PMIs would be deeply below 50 across the board, particularly in manufacturing.

Instead, as Exhibit 1 shows, the results mostly matched the recent trend. All reporting nations except the US endured manufacturing contractions, but aside from the UK, the contractions were largely in line with March and milder than recent months. Given the UK faces only the 10% blanket tariff rate, we suspect its decline had more to do with concerns over this month’s higher minimum wage and Employer National Insurance Contribution hikes and a weak domestic economy, as well as ongoing hiccups for retooling at major steel mills.^[iii] Meanwhile, US manufacturing’s expansion and overall improvement suggests to us tariffs didn’t suddenly stanch the flow of imported components and raw materials.

Exhibit 1: Manufacturing PMIs

Source: FactSet, as of 23/4/2025.

Interestingly, more material deterioration happened in services, which is theoretically much more insulated from tariffs. After all, tariffs target physical goods. This might affect services firms that need to stock up on supplies or replace equipment, but that is a matter of cost pressures, not overall activity. Said another way, hairdressers and accountants likely shouldn’t suddenly lose business because of tariffs. We can see an argument that overall uncertainty caused some outfits to hit pause, but this doesn’t seem like a direct, fundamental tariff effect to us. Rather, we think it is a trend worth watching to see if activity picks up as we move past April’s various dust-ups.

Exhibit 2: Services PMIs

Source: FactSet, as of 23/4/2025. Note: Japan doesn’t have a flash Services PMI.

Again, this is just one suite of surveys conducted in the 10-ish days after Trump paused reciprocal tariffs on 9 April.^[iv] Timely, interesting, but one data point and not all-telling, in our view. We need more time and a broader array of data to see the true effects. And of course, further tariffs or retaliation are always worth monitoring, in our view. But so far, we think the little data we have suggests things are going not quite as bad as many commentators we follow warned they would. And when consensus expectations are as low as we find they are now, our research suggests that can be all stocks need for bullish positive surprise.