The impact of tariffs has yet to show up in the data.
For now, the Goldilocks environment continues.
Real GDP growth:
Q1 2025: –0.5%, much better than feared.
Q2 2025 estimate: 2.7%, down from a peak of 4.7%.
Core PCE:
2.7% yoy in May (the latest available).
The Labor Market:
Unemployment Rate: 4.1%.
Two cuts are expected for 2025, starting from September.
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Lagging Indicators
The Unemployment Rate is at 4.1%.
The number of job openings has come down from the high in 2021.
Real GDP growth was disrupted by tariff expectations in Q1.
2024Q4: 2.4%
2025Q1: -0.5%
2025Q2: 2.6% (est.)
Core PCE has gone sideways and is still meaningfully above the Fed's 2% target.
Service Inflation now declines faster than the growth in wage.
Corporate earnings and profit are on trend.
Leading Indicators
3m-10y Term Spread turned back to negative.
Initial Claims slightly declined. Continued Claims were flat.
Housing starts have resumed their decline.
Average Weekly Hours stayed low.
Retail Sales indicates that consumers are still-resilient even though sentiment is dimmed.
University of Michigan Consumer Sentiment dipped in May.
No significant changes in either the Manufacturing PMI or the Services PMI.
Volatility dipped as stocks making new highs.
Investor Sentiment rebounded.
Fed Rate Path
