The way ahead grows cloudier…
- Earlier today, good news was reported as March’s inflation dropped to an annualized rate of 2.3% as measured by the Fed’s preferred inflation gauge – the PCE Index. The reading slightly missed the expected figure of 2.2% while core inflation met expectations of 2.6%. The signs, for the moment, show inflation is slowly creeping back to the Fed’s goal of 2%. However, the likelihood of achieving this goal has grown cloudier as current expectations for future inflation keep rising, largely due to the impact of the Administration’s new tariff policies.
- As expected, bad news came from the 1st quarter’s GDP growth when the Commerce Department reported the economy contracted at an annualized rate of 0.3%, the largest decline in economic activity since the first quarter of 2022. Economists surveyed by the Wall Street Journal had predicted a more subdued growth rate of 0.4% rather than reported decline. One of the first major economic reports of the Trump presidency, many consumers and business leaders pointed to the inconsistent tariff policy as reasons for their more cautious investment and spending decisions.
- ADP’s latest employment report revealed a significant slowdown in hiring with just 62,000 jobs added in April compared to 147,000 in March. An ADP economist cited growing business unease, amid ongoing economic turbulence and uncertainty, making it increasingly difficult for employers to plan for greater jobs creation. Despite the slowdown, the ADP report did note that layoffs have not yet seen a substantial increase.
- With the earnings season well under way, reported corporate earnings show earnings per share (EPS) growth of 10.1% year-over-year, the second consecutive quarter of double-digit growth. Looking ahead, many companies have issued more cautious outlooks, warning of reduced revenue and shrinking profits amid a now highly uncertain political and economic climate. A number of major firms have unusually suspended providing earnings outlooks for this fiscal year, citing the uncertain impact of the new tariff policy.