This week’s data will offer fresh clues on the labor market and the state of U.S. consumer finances. Although the stock market ticked up and Treasury yields eased last week on hopes for a U.S.–China trade deal, the status quo is likely to inflict near-term pain on consumers and drag growth lower in 2025.
Consumers Are Pulling Back – and Growth Could Slow Further
Personal Income & PCE Report
As policy uncertainty mounted during the new administration’s first 100 days, consumer confidence plunged – driven by fears of higher prices from tariffs and dwindling job prospects.
When consumers expect future price increases, they tend to pull forward spending on goods and services. Inflation had already been re-accelerating ahead of the tariffs: the PCE price index is up 2.5% year-over-year, but annualized monthly inflation (4%) exceeds the three-month (3.8%) and six-month (3%) rates. San Francisco Fed research attributes much of this uptick to supply-side factors.
On the demand side, U.S. consumers have been tightening their belts: the personal savings rate rose from 3.3% in December to 4.6% in the latest report, suggesting that households are tapped out and expect tariffs to weigh heavily on their employment and real income prospects.
Fed Perspective
Fed Governor Christopher Waller recently noted that tariffs are a tax, likely dragging demand lower in the second half of the year. He may be willing to look past the initial price spike from tariffs, but weaker demand could push unemployment higher – and the magnitude and speed of that adjustment will shape the timing of the next rate cuts. “We all hate taxes,” he said. Given enormous federal government budget deficits, perhaps a tax is what was needed. Was it the right approach to shrink the budget deficit? Who knows? We’ll have to wait to find out!
This Week’s Main Event: The First Jobs Report Post–“Liberation Day”
Despite a decade-low hiring rate, job openings have held steady at 7.1–7.6 million over the past six months, and unemployment has hovered around 4.1% to 4.2%. With businesses increasingly wary of policy uncertainty, employment growth is expected to have slowed in April.
In Other Economic News
Construction Spending
Construction spending likely slowed in March, with an 11.4% drop in residential construction leading the decline.
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