| The key Employment report revealed that the economy added 177,000 jobs in April, above the consensus of 130,000, but downward revisions to the results for prior months offset the excess gains. The unemployment rate remained at 4.2%, as expected. Average hourly earnings, an indicator of wage growth, were 3.8% higher than a year ago, the same annual rate as last month.
Gross Domestic Product (GDP) is the broadest measure of economic activity. During the first quarter of 2025, U.S. GDP fell 0.3%, below the consensus forecast for an increase of 0.4% and down from growth of 2.4% during the fourth quarter. The last decline was in the first quarter of 2022. The results were heavily influenced by a 41% surge in imports, as businesses and consumers raced to purchase items before higher tariffs kicked in. In fact, imports took a massive 5 percentage points off the results. A slowdown in consumer spending and government expenditures also contributed to the weakness. Looking ahead, though, the purchases which were pulled forward to beat the tariffs likely will reduce the amount of imports needed in future quarters, raising GDP readings.
Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. In March, Core PCE was 2.6% higher than a year ago, down from an annual rate of increase of 3.0% last month, and the lowest level since March 2021. Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021. The big question is how large an impact higher tariffs will have on future inflation levels. |
