Last week's economic data arrived against the backdrop of a buoyant stock market enjoying a nine-day winning streak — its longest since 2004. While the labor market continued its surprising resilience in April, adding more jobs than expected, the broader economic landscape revealed significant underlying strain. The first quarter saw the U.S. economy contract for the first time in three years, driven largely by a surge in imports ahead of tariffs. Adding to the concerns, consumer confidence plunged to its lowest level in nearly five years, with pessimism spreading across future economic prospects and inflation expectations soaring due to tariff anxieties.
Meanwhile, inflation as measured by the PCE Price Index showed signs of cooling. This divergence, a strong labor market juxtaposed with contracting GDP and collapsing consumer sentiment, all occurring during a notable market rally, reinforces the complex and uncertain path ahead for the U.S. economy.
Employment Report
The U.S. labor market remained surprisingly solid in April, adding more jobs than anticipated. The latest employment report showed that 177,000 jobs were added last month, exceeding the expected 138,000 addition. This marks a slight slowdown from March’s downwardly revised number of 185,000 new jobs.
Meanwhile, the unemployment rate remained near historically low levels at 4.2%, as expected. Wage growth was softer than expected. Average hourly earnings rose 0.2% in April from the previous month, lower than the expected 0.3% growth. On an annual basis, average hourly earnings were up 3.8%, unchanged from March but below the expected 3.9% growth.
The labor market has shown resilience in the face of elevated rates over the past few years, with 52 consecutive months of job growth. While April’s data continues to support this narrative, economic uncertainty remains high.
Gross Domestic Product
The U.S. economy contracted for the first time in three years to start off 2025. According to the advance estimate, real GDP — the inflation-adjusted measure of all goods and services produced in the U.S. — contracted at an annual rate of 0.3% in the first quarter of this year. This reflects a significant slowdown from Q4’s 2.5% growth and was lower than the 0.2% forecast.
In Q1, two of the four components made positive contributions to real GDP. Net exports was the primary driver behind last quarter’s contraction, as imports surged in the first three months of the year ahead of tariffs. Government spending was also down while consumer spending and business investment made positive contributions.
Consumer Confidence
The Conference Board Consumer Confidence Index® plunged to its lowest level in nearly five years last month. The index fell for a fifth consecutive month from 93.9 in March to 86.0 in April, marking the steepest one month decline since August 2021 and the longest losing streak since 2008. The latest reading was below the forecast of 87.7.
The index is based on a monthly survey of consumer attitudes regarding present and future economic conditions.
The Future Expectations index fell further last month, hitting its lowest level since October 2011 and sitting well below the threshold of 80 that usually signals a recession ahead. Consumers are growing more pessimistic about future business conditions, employment opportunities, and income prospects, which turned negative for the first time in five years.
Within the Present Situation Index, views on the labor market weakened while perceptions of current business were more positive. Inflation remains a key concern, with 12-month inflation expectations rising to 7.0% last month. This marks the highest level since November 2022 and is primarily fueled by tariff concerns as write-in responses referencing “tariffs” are at an all-time high.
The Consumer Discretionary Select Sector SPDR ETF (XLY) is tied to consumer confidence.
PCE Price Index
Inflation, as measured by the Federal Reserve's preferred metric, cooled to its lowest level in nine months. The Core Personal Consumption Expenditures (PCE) Price Index, which excludes volatile food and energy costs, rose 2.6% year-over-year in March. The latest reading was consistent with the forecast and marked a slowdown from 3.0% in February. On a monthly basis, core prices were flat, lower than the expected 0.1% growth. Meanwhile, the headline PCE Price Index saw a 2.3% annual increase, down from 2.7% in February. This is the lowest level in six months. Monthly, the headline index was also flat, as expected.
Market Reactions
The S&P 500 notched its ninth straight days of gains this week, its longest winning streak since November 2004. As a result, the SPDR S&P 500 ETF Trust (SPY) rose 2.9% last week. Meanwhile, the S&P Equal Weight Index was up 2.6% from the previous week and the Invesco S&P 500® Equal Weight ETF (RSP) rose 2.7%.
The yield on the 10-year note ended May 2, 2025 at 4.33% while the 2-year note ended at 3.83%.
Market expectations for rate cuts shifted last week. The CME FedWatch Tool currently projects three 25 basis point reductions in 2025, with the anticipated start having moved to July rather than June. Subsequent cuts are anticipated in September, October, and December, with one more 25 basis point cut expected in 2026.
Economic Data in the Week Ahead
The economic calendar for the upcoming week appears relatively light, with a few key indicators to watch. The Institute for Supply Management (ISM) and S&P Global will release their respective Services PMI, offering a snapshot of activity in the services sector. Additionally, the latest trade balance figures will provide insight into the flow of goods and services. Of particular interest will be the latest weekly unemployment claims, arriving after initial claims peaked at a two-month high and continuing claims reached their highest point since 2021, suggesting a possible change in the labor market.
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