by Kim | Jun 30, 2025
Key events this week: US non-farm payrolls, ISM surveys, ECB Forum on Central Banking, US Independence Day Holiday
Recap from last week: US Growth Cools while the Inflation Path Remains Unclear
After a period of elevated geopolitical anxieties, this week’s economic spotlight shifted firmly back onto the health of the US economy. Last week’s activity, spending, and inflation data for May provided a crucial snapshot of the growth trajectory and momentum of the US economy as firms and households adjust to the new tariff and policy regime.
Following a broad range of US economic data releases last week, the Atlanta Fed GDP nowcast growth run rate for Q2 saw a modest step down from +3.4% to +2.9% after the May data. This deceleration reflects a continued reduction in the contribution from personal spending, alongside a slightly larger drag from falling residential investment spending and from the change in inventories. These effects were only partially offset by a larger positive contribution from net exports, as tariff-led distortions on exports and imports continue to reset. Excluding the contributions from net exports and the change in private inventories, the proxy for domestic final sales slowed, edging from +1.7% growth to +1.6% (annualized over the quarter). The slowing momentum in Q2 comes on the back of Q1 GDP contracting at a slightly faster pace of -0.5%. This revision lower was led by slower/stalled growth in personal spending in Q1.
Drilling deeper into the drivers of this softening activity in May, last week’s data in particular sheds some light on a nuanced consumer landscape. While the underlying footing of labor market income for personal spending still looks solid, several headwinds, including subdued sentiment, could be dampening spending activity for now.
Consumer sentiment, as measured by both the Michigan and Conference Board surveys, has remained at subdued levels. Measures of consumer expectations for both the economic and inflation outlook have borne most of the negative brunt of not only this tariff episode, but also other policy measures such as government job cuts. While the recent easing of tariff rhetoric has brought some stabilization to the negative trends, still subdued sentiment indicates that consumers remain concerned about inflation, the labor market, and slowing growth, likely providing a negative backdrop for spending intentions.
Importantly, despite the fall in overall personal income this month, the income indicators reflecting labor market conditions remained solid in May. This suggests a still solid underlying footing for consumers and households. Headline personal income was softer than expected, falling by -0.4% in May versus +0.7% in April. The decline in May was primarily driven by two factors: a fall in proprietors’ income from the farm sector, which is relatively small share of overall income, but accounted for nearly 40% of the fall in aggregate income for the month, and a decline in transfer receipts after last month’s back-payment spike. Importantly, indicators reflecting labor market conditions remained solid in May. Wages and salaries growth remained at a solid +0.4% for the private sector, while wages and salaries growth slowed to +0.3% for the government sector, consistent with the slower growth in government payrolls flagged last month.
The recent increase in initial claims has raised concerns over a softening labor market, potentially impacting incomes. Last week, initial claims did ease, while continuing claims (lagging by a week) moved higher again, remaining above 1.9m and reflecting this slower hiring environment. We’ll get a more comprehensive update on the US labor market for June this week to see the degree to which this recent rise in claims and continuing claims is manifesting in unemployment and how that may impact the outlook for household spending and income.
The final piece of the puzzle was the more pervasive sign of slower consumer spending. In real terms, personal spending fell by -0.3% in May after a more subdued increase of +0.1% in April. While tariff distortions are visible in goods spending, we also noted slower growth in spending on services, which slowed to 0% in May – a slowing that was reflected across most services expenditure categories. It remains to be seen if this is temporary. There are, however, several headwinds to consumption growth that can’t be ignored, including slowing payrolls, led by government job cuts, notable uncertainty over the outlook/subdued sentiment, and falling immigration.
Looking at the latest survey data, the prelim US S&P PMI for Jun indicated that activity likely remained moderate in the final month of Q2. The composite output indicator suggested that activity continued to grow, though it did ease slightly. Falling exports across manufacturing and services acted as a drag on growth, but were offset by another round of (reportedly) tariff-led inventory building. Backlogs continued to increase, and firms expanded employment. Tariff-led price pressures persisted – the price indexes rose at an especially sharp and increased rate in manufacturing, but also continued to rise steeply in services.
This evolving economic backdrop, particularly the dynamics of slowing growth and cautious consumer activity, along with inflation concerns stemming from tariffs, remains central to the Fed’s policy considerations. While expectations of tariff effects on inflation are on the Fed’s radar, the latest PCE inflation report for May again showed little tariff impact so far. Headline PCE inflation came in as expected at +2.3% in May, while the rate in April was revised higher to +2.2%. Core PCE inflation came in higher than expected over the month at +0.2% and by +2.7% over the year, with the prior annual rate also revised higher. Core goods PCE inflation has stayed firmer year-to-date, while the overall slower monthly readings have been driven by an easing in core services inflation. Housing disinflation continues to progress consistently. Super core services excluding housing also showed signs of slowing, yet the annual rate remained unchanged at +3.1% (still below +3.5% from a year ago) in May.
Despite the more benign monthly inflation readings recently, the annual rates of PCE inflation have remained little changed, cycling over slower readings from a year ago. This will be important as we head into the June and July inflation readings. Fed Chair Powell’s testimony last week flagged that the June and July inflation reports would be important, as inflation impacts from tariffs were expected to begin to show up. Chair Powell noted he was open to the idea that these tariff effects could be less than anticipated, reiterating that a wide set of outcomes was still possible. He did not buy into the timing debate for when Fed rate cuts may restart, but did acknowledge that if inflation was weaker or if the labor market deteriorates, the Fed could cut rates sooner. Chair Powell stated there was a case to cut rates now, but emphasized that data is backward-looking and expectations for inflation to move higher due to tariffs cannot be ignored. So far, markets are pricing in two, with a possible third rate cut in the second half of this year (source: CME Fed Watch).
Outside of the US, the suite of prelim PMIs showed that activity stabilized across both manufacturing and services sectors in Jun. While there was a broad, modest uptick in overall economic activity (largely service-led), the global picture remains one of heightened uncertainty driven by geopolitical tensions and tariff policies, which are impacting exports and causing inflation trends to diverge (price spikes in the US due to tariffs, but moderation elsewhere). The labor market generally reflects this cautious outlook, with either slowing job creation or outright cuts in some regions.
Outlook for the week ahead: US non-farm payrolls, ISM surveys, Global PMIs, ECB Forum on Central Banking, US Independence Day Holiday
The week ahead will feature a broad range of important US economic reports, including the crucial payrolls and labor market data for June, the full suite of global PMIs for June, and the ECB Forum on Central Banking. The passage of the US budget reconciliation bill – the One Big, Beautiful, Bill Act – is expected to be completed this week and signed in time for the Independence Day Holiday deadline on July 4. News of progress on trade deals is expected to increase as the July 9 reciprocal tariff deadline approaches.
Key factors & events to watch this week;
A broad update on the US labor market for June. This is important given the recent weakening in the initial claims data, as well as what it may mean for a softer spending outlook. NOTE that the key labor market data will be released a day earlier than usual on Thurs, 3 July.
- US non-farm payrolls are expected to increase by +120k in Jun, after a +139k increase in May.
- The unemployment rate is expected to increase to 4.3% from 4.2% in May.
- Average weekly hours are expected to be unchanged at 34.3hrs.
- Average hourly earnings are expected to be unchanged at +3.9% growth over the year.
- Job Openings for May (lags by a month) are expected to increase slightly to 7.4m from 7.39m in April.
- Challenger Job Cut Announcements for Jun are expected to remain elevated. In May, job cut announcements came in at 93.8k.
- Initial jobless claims for the week ending 28 Jun are expected to remain little changed at 239k versus 236k in the prior week.
US economic activity reports will be important for gauging momentum into the final month of Q2.
- The ISM PMIs for June are expected to show some marginal improvement. The contraction in manufacturing activity is expected to abate slightly to 48.8 in Jun from 48.5 in May. Services activity is expected to expand from 49.9 to 50.8 in June. The price indexes in both of these surveys have been reflecting more widespread increases in prices, and it will be important to see if that continues.
- The final goods trade balance for May will be released and is expected to remain close to the -$96bn deficit reported last week.
- US Factory Orders for May are expected to increase by +8% after falling by -3.7% in April.
ECB Forum on Central Banking – Sintra
- While the forum goes for several days, the key event will be a policy panel on Tue 1 July with US Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey, BoJ Governor Ueda, and Bank of Korea Governor Rhee Chang-Yong.
- The full schedule can be found HERE.
Europe
- The prelim Eurozone headline CPI for Jun is expected to increase slightly to +2% in Jun from +1.9% in May. Core CPI is expected to be unchanged at +2.3%.
- The latest ECB minutes will be released.
The broader suite of global S&P PMIs for Jun will be released this week.
This week, the US Treasury will auction and/or settle approx. $652bn in ST Bills, Notes, Bonds, and TIPS, raising approx. $121bn in new money. Of this amount, only $5bn in new money will fall into Q3.
The US Treasury announced the first of a series of Cash Management Bills (CMB) to manage debt limit-related constraints. Starting this week, the US Treasury expects to issue a series of CMBs for up to $250bn in aggregate, to mature in the second half of Sep 25. More details HERE.
QT this week: Approx $36bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $4.6bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 23, 2025
Key events this week; US PCE Inflation, Fed Chair Powell testimony, US goods trade balance (prelim), and S&P prelim PMIs Jun
Recap from last week: Central Banks Navigate Trade Uncertainty
Amidst persistent tariff and trade uncertainties, major central banks—including the Fed, BoJ, and the BoE—maintained their cautious “wait and see” approaches last week. The global economic outlook continues to be overshadowed by trade tensions and now, elevated, and potentially, escalating geopolitical risks following the US strikes on Iranian nuclear facilities over the weekend.
Last week, the FOMC kept rates on hold, noting that, with the US economy remaining ‘solid’, policy remained well positioned to respond in a timely way to economic developments. The decision reflected some easing in tariff-related uncertainty compared to the prior two meetings, with Powell noting that tariff uncertainty peaked in April. There is still a high degree of uncertainty over the “final” version of tariffs and how they might flow through the supply chain into prices and activity; however, Powell noted that “we’re going to learn a great deal more over the summer on tariffs”. The latest projections showed members revised core PCE inflation higher and growth slower through the end of 2025. The path of rate cuts has become split between members projecting no rate cuts through the end of the year, and members projecting at least two rate cuts through the end of the year. In his press conference, Chair Powell highlighted that one of the Fed’s jobs was to “make sure that a one-time increase in inflation doesn’t turn into an inflation problem”. In contrast, Fed Gov. Waller reiterated his case to “look through” tariff-led inflation, expecting it to be a mostly one-off effect (source: CNBC interview 20 June). Gov. Waller advocated to restart rate cuts as early as the July meeting given the recent run of more favorable inflation reports allowing for his “good news” rate cuts – but he also highlighted that these cuts would likely need to take a slow, steady path.
The Fed’s decision continues to highlight the importance of tracking inflation impacts, the labor market, and activity. The trajectory of growth through this initial tariff & trade shock has been mostly resilient – with distortions creating uncertainty over the near-term path of growth. Other policy items, including immigration, fiscal, and geopolitical events, are now coming into the frame, adding a further layer of uncertainty over the growth and inflation outlook.
US data last week was mostly weaker than expected and growth expectations for Q2 edged lower. The latest Atlanta Fed GDP nowcast showed growth slowing from +3.7% at the start of the week to +3.4% by the end of the week. The main contributor to the slowdown was the larger-than-expected fall in nominal retail sales in May, driven by the notable fall in motor vehicle sales, as well as the fall in gasoline prices affecting nominal sales growth. The fall in housing starts also contributed to the slower growth run rate for Q2 – as residential investment spending continues to contract slightly through Q2. Manufacturing output was little changed after falling in Apr. Excluding the +5% increase in motor vehicle output, manufacturing output fell by -0.3% in the month. The latest initial claims fell slightly to 245k while the focus remains on continuing claims near this cycle high of 1.945m.
The BoJ kept its policy settings on hold, continuing to cite uncertainty over the outcomes of trade negotiations on output and prices. For now, there has been no trade deal negotiated between the US and Japan. The BoJ did announce it was slowing the pace of cuts to its Bond buying program, starting next April, as it maintained its overall policy normalization bias.
“We made our decision to ensure we’re not cutting purchases too fast in a way that would cause a negative impact on the economy through abnormal volatility in yields,” Ueda said at a press briefing after the decision. (Source: Bloomberg)
The latest Japanese inflation data will likely keep the BoJ on edge as food prices (ex-fresh food) continue to rise. The BoJ preferred measure of core CPI ex fresh food increased to +3.7% in May, as the monthly rate eased to +0.4%, but remained elevated. CPI excluding fresh food and energy increased to +3.3% over the year in May, as the monthly pace slowed to +0.3%. The BoJ will continue to monitor impacts from tariffs, as well as impacts on energy prices from geopolitical events.
The BoE kept its policy rate unchanged this month in a 6-3 majority vote. According to the decision, disinflationary progress had continued, but there was not a strong case for a further easing of monetary policy at this meeting. Inflation is expected to stay at around the +3.5% rate for the remainder of the year. Inflation had increased to +3.4% in May from +2.6% in Mar, in line with expectations and due mostly to the rise in regulated prices and energy prices in Apr. At the same time, UK GDP growth may have weakened at the start of Q2, and the labour market has continued to loosen. The latest retail sales (volume) result for May showed a notable fall of -2.7% over the month adding further to concerns of a growth slowdown. Guidance from the BoE continued to cite “heightened unpredictability in the economic environment”.
In contrast, the Swiss National Bank reduced its policy rate back down to zero; after previously signaling it was likely finished with easing. Market turmoil resulting from recent US policy shifts was seen as a catalyst for a strengthening Franc and falling prices;
Speaking to reporters in Zurich on Thursday, President Martin Schlegel said the SNB is attempting to counter “lower inflationary pressure” and stressed that the central bank “will continue to monitor the situation closely and adjust our monetary policy if necessary.” (Source: Bloomberg)
Outlook for the week ahead; US PCE Inflation, Fed Chair Powell testimony, US goods trade balance (prelim), and S&P prelim PMIs Jun
As we look to the week ahead, expect a broad range of economic events, data, and persistent risks. Geopolitical concerns will likely remain elevated with the degree of escalation in the conflict unclear. The data calendar highlights include US inflation and growth, alongside early insights into broader activity momentum from the S&P prelim PMIs for Jun. Furthermore, central bank commentary and the looming July 9 reciprocal tariff deadline will also remain firmly on the radar.
Key factors & events to watch this week;
The Fed-preferred PCE inflation data for May will be released this week.
- Headline PCE inflation is expected to increase by +0.1% over the month, unchanged from +0.1% in Apr. Annual headline PCE inflation is expected to increase by +2.3% in May, up from 2.15% in Apr.
- Core PCE inflation is expected to increase by +0.1% in May, in line with +0.1% in Apr. The annual core PCE inflation rate is expected to increase from +2.5% in Apr to +2.6% in May.
US consumption and activity data will feature heavily this week. This includes the advance economic indicators showing how the trade balance in goods is evolving amid the tariff agenda and how it’s likely to affect growth in Q2.
- US Personal spending growth is expected to be unchanged in May at +0.2% from +0.2% in Apr.
- US Personal income growth is also expected to slow in May to +0.2% from +0.8% in Apr.
- The latest prelim goods trade balance for May is expected to widen slightly to -$91.9bn. The Apr goods trade balance narrowed notably to -$87bn after sharp falls in imports. This resulted in a positive impact on Q2 growth – so the degree to which this trend continues will be important for Q2 growth.
- US Q1 GDP is expected to be confirmed at -0.2% (annualized).
- US durable goods orders are expected to increase by +0.1% in May after a -6% fall in Apr.
- US new home sales are expected to ease further to 0.692m (annualized) in May from 0.743m in Apr. Existing home sales are expected to remain weaker at 3.96m annualized in May, down from 4.0m in Apr.
- Both the Conference Board and Michigan consumer sentiment surveys for Jun will be released this week – both providing a view of changes in consumer expectations in the outlook.
- US initial claims are expected to be unchanged at 247k in the week ending 21 Jun 2025.
Central bank speeches and testimony will feature this week.
- US Fed Chair Powell will give two days of testimony this week – Semi-annual Monetary Policy Report to Congress. The main topics are likely to be questioning over the timing of rate cuts and inflation progress.
- Other Fed speeches this week include Fed Gov. Waller giving opening remarks at the International Journal of Central Banking Conference. The full calendar of speaking events can be found here.
- BoE Governor Bailey will also provide testimony this week to the Lords Economic Affairs Committee.
- The EU leaders summit will take place this week on 26-27 Jun.
Canada CPI for May will be released this week. Firming inflation had been noted by the BoC as it held its policy settings unchanged at its last meeting. The fall in inflation in Apr was the result of a fall in energy prices from the removal of the consumer carbon price.
- Headline CPI is expected to rebound to +0.5% over the month, from -0.1% in Apr. Headline CPI is expected to increase from +1.7% in Apr.
- The BoC core measures of inflation are expected to stay elevated at +3.1% for the trimmed mean and +3.2% for the median rate.
S&P Prelim PMI’s for Jun will be released at the start of the week. This will provide some insight into growth momentum in the final month of Q2 amid the onset of the new trade and tariff regime.
This week, the US Treasury will auction and/or settle approx. $407bn in ST Bills and 2-year FRNs with a paydown of approx. $31bn. The US Treasury will also auction the 2-year, 5-year, and 7-year Notes this week – and will settle on 30 Jun, together with the 20-year Bond and 5-year TIPs.
QT this week: Approx $9.1bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 16, 2025
Key events this week; Central Bank Meetings – FOMC, BoJ, SNB, BoE, and US Retail Sales
Recap from last week: Benign US Inflation for May
Last week offered a mixed view of the global economic outlook. Initial optimism stemmed from benign US inflation reports, which showed little impact from tariffs, coupled with favorable progress in US-China trade negotiations. However, this positive sentiment was overshadowed by the week’s end as rising instability in the Middle East began to emerge, casting a deepening shadow over the geopolitical landscape.
The US CPI & PPI reports were much anticipated this month to answer whether tariff effects were beginning to ripple through the data. Both the US CPI and PPI reports came in lower than expected, reducing expectations for the Fed-preferred PCE deflator in May. While some of the details in the CPI report may have reflected small pockets of tariff-led inflation, the bigger picture annual headline and core inflation rates remain little changed as we cycled over a low inflation month from a year ago. US headline CPI inflation increased by +0.1% over the month, against an expectation of +0.2%, while the annual rate edged higher to +2.4%. Core CPI was also lower than expected over the month at +0.1% (versus an expectation of +0.3%); however, it remained unchanged over the year at +2.8%. The trimmed mean measure of underlying inflation is showing more of a sideways trajectory. Importantly, the broad disinflation trends across services and shelter remain intact, while core goods inflation continued to edge higher from a low level. The PPI report also came in lower than expected. Core PPI came in at +0.1% over the month (versus an expected increase of +0.3%) while the annual rate stayed unchanged at +3%. Together, the CPI & PPI indicate that core PCE will continue to be more benign in May at around +0.14% for the month (source: Cleveland Fed PCE Nowcast).
It’s still highly uncertain the degree to which tariffs will be passed through to US consumer prices in the coming months. While progress was made on US-China talks last week, President Trump continued to threaten a unilateral approach to the ‘reciprocal’ tariffs. However, given the darkening backdrop in the Middle East, the reciprocal tariff deadline (9 Jul) could get pushed out further.
Finally, we continue to watch the trend of the US initial claims data. There was a more noteworthy jump in the NSA claims this week while the SA claims remained elevated. For the third week in a row, continuing claims have been above 1.9 million claimants.
Outlook for the week ahead; Central Bank Decisions – FOMC, BoJ, SNB, BoE, and US Retail Sales
The focus this week will be on a range of key Central Bank meetings, including the FOMC, US consumption and activity data, and the geopolitical backdrop.
The US Juneteenth Holiday is on the 19 Jun this week.
Key factors & events to watch this week;
Central bank decisions;
- The FOMC is expected to keep policy settings unchanged this week. At the last meeting, the FOMC remained in wait-and-see mode due to the high degree of uncertainty over the “final” version of tariffs, and how that will play out in terms of inflation, the labor market, and growth. There are still distortions in the data making that assessment difficult. The latest Fed Summary of Economic Projections will be released, and it will be important to see how Fed projections of inflation, growth, unemployment, and the path of the FFR have changed. We’ll also be looking for any changes in the characterization of the current benign inflation and the signs of cooling labor market conditions.
- The BoJ is expected to keep policy settings unchanged. At its last meeting, the BoJ remained on hold, citing risks and uncertainty regarding the near-term impact of trade tariffs on activity and prices. The BoJ retained its normalization bias IF broader conditions in activity and prices improved as per forecasts. The Japanese National CPI for May is due later in the week and is expected to remain firm.
- The BoE is expected to keep policy settings unchanged after reducing the Bank Rate by 25bps at the prior meeting. The decision to cut at the last meeting was based on disinflation progress. While the Apr UK CPI was firmer (some one-offs) the May CPI due this week is expected to ease again. The latest labour market data continues to reflect some easing in conditions.
- The SNB is expected to cut rates by 25bps – back to zero.
US consumption and activity data will also be in focus this week – providing another solid update to the latest Atlanta Fed GDPNowcast for Q2.
- US nominal retail sales are expected to fall by -0.6% in May – led by a fall in auto purchases as consumers ‘pulled forward’ purchases due to tariffs. Excluding autos, nominal retail sales are expected to increase by +0.1% in May, from +0.1% in Apr.
- US building permits and housing starts are expected to be little changed in May. Building permits are expected to increase to 1.43m (annualized rate) from 1.422m in Apr. Housing starts are expected to be unchanged at 1.36m (annualized rate) in May.
- US industrial production is expected to remain unchanged at 0% in May (versus 0% in Apr).
- The first regional manufacturing surveys for Jun will also be released this week.
Global inflation reports will be important this week in the context of central bank decisions.
- Japanese National Core CPI – ex fresh food (BoJ preferred measure) is expected to accelerate slightly again, from +3.5% in Apr to +3.6% in May.
- The UK CPI for May is expected to ease after a more notable increase in Apr. Headline CPI in May is expected to increase by +0.2% over the month down from +1.2% over the month in Apr. Over the year, core CPI is expected to ease from +3.8% in Apr to +3.5% in May.
- The Euro area CPI for May is expected to confirm annual headline inflation at +1.9% and core inflation at +2.3%
Finally, the Aus labour market report for May is expected to show some easing in net employment growth from 89k in Apr to 20k in May. The unemployment rate is expected to be unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $379bn in ST Bills with a paydown of approx. $61bn. The US Treasury will also auction the 5-year TIPS and 20-year Bond this week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 9, 2025
Key events this week; US CPI & PPI May
Recap from last week: Policy Impacts
We are at an early point in the policy cycle where significant new policy changes are beginning to be reflected in US economic performance. Our focus remains on tracking shifts in the US economy’s progress, mindful of the potential for higher inflation, slower growth, and distortions stemming primarily from evolving policy. This past week provided two important updates. The first was the May US labor market update, crucial for understanding the outlook for household spending. The second was an update on business activity and sentiment, examining how private sector firms are faring amid ongoing uncertainty and disruptions surrounding the new tariff regime.
US labor market data for May was mixed. Across payrolls and the household survey, there was not a sharp deterioration, but certainly some cooling in conditions. Other labor market reports indicated warning signs still on the horizon.
US non-farm payroll growth came in close to expectations at +139k in May, with a notable downward revision of -95k for the prior two months. The 12-month average slowed to +144k – the slowest of this cycle. While payroll growth slowed, the details this month still seem to mostly reflect a lack of hiring, rather than active retrenchment or layoffs.
The industry view of payroll growth suggests that policy-led initiatives may be having an impact. This is primarily evident in the split between govt and private payrolls. The growth in govt payrolls has slowed to an average of zero since Feb 2025 (DOGE cuts) – down from the average of 38k/month during 2024. This has affected the overall growth in non-farm payrolls since Feb. Importantly, total private payroll growth remained at +140k in May – just above the 2024 average growth of +130k. Annual growth in private payrolls has remained fairly steady around +1.1% since Aug 2024, but this is still the lowest of the current cycle.
Within the private sector, it’s more unclear the degree to which policy-led changes are beginning to impact payroll growth. In most cases, tariffs are likely to exacerbate existing pockets of weakness – especially in manufacturing and construction. Importantly, private payrolls are still growing on a year ago basis across most industries, with annual declines recorded in only three industries – manufacturing, professional and business services, and information.
In May, manufacturing (-8k) and professional & business services (-18k) recorded the only substantial falls in payrolls for the month (of >1k). The weakness in manufacturing payrolls has been in place for almost two years – with payrolls declining on an annual basis since Oct 23 – led by durable goods industries – indicating other factors at play. However, tariff disruptions may exacerbate this trend in the short term.
Two other key industries have recorded slowing payroll growth. Construction payrolls have slowed more notably since Oct 2024 and will likely be exacerbated by tariffs, but also impacted by interest rates. Trade and transportation payroll growth has slowed over the last 3 months – possibly more aligned with the new tariff regime.
Payroll growth in only three industries (narrow breadth) more than offset these falls this month; private health & education, leisure & hospitality (especially in the last 3 months), and the recovery in financials – all contributing a combined +148k payroll increase in May, which was most of the increase in private payrolls.
The household survey showed a notable fall in the number of persons employed in May – almost matched by a fall in the size of the labor force, as persons left the labor force. This still resulted in a small increase in the unemployment rate from 4.18% to 4.24%. The flows to unemployment were more concerning with a larger flow from “employed” to “unemployed” (equal high for this part of the cycle), plus a further increase in persons remaining in unemployment from the prior month. The growth in hours worked remained steady over the month.
Other labor market reports suggest that further labor market weakness may still be on the horizon. The JOLTS report for Apr (lags by a month) did indicate some emerging weakness in layoffs, but hiring still increased. Initial jobless claims remained elevated – and continuing claims remained unchanged at 1.9m suggesting that weakness in hiring is persisting. The Challenger Job Cut Announcements remained elevated in May and there was a notable shift in the leading reason for job cuts; from DOGE actions to ‘market/economic conditions’ and ‘closing’. The Fed Beige Book highlighted “widespread” comments of delayed hiring plans due to uncertainty, with all districts noting lower labor demand and declining hours and over-time. Reports of layoffs were still not pervasive.
The important point for the labor market outlook right now is how firms are faring amidst policy changes, disruptions, and still elevated uncertainty. The latest surveys still reflect the current tariff environment contributing to a more cautious and subdued economic backdrop. Surveys from manufacturing and services firms this month showed a continued slowing in demand, though no severe contraction, as firms grapple with the challenges of navigating uncertainty, rising prices, and supply disruptions. US-based surveys for May showed a consistent theme across both manufacturing and services sectors – and that was the impact of tariffs on prices. From the S&P US Services PMI;
“Alongside sluggish economic growth, the survey is also signaling intensifying inflationary pressures. Rising costs in the service sector were again blamed widely on tariffs, which were in turn passed on to customers to result in the steepest rise in average prices charged since August 2022.” Source: S&P US Services PMI – May
The latest Fed Beige Book reflected a similar sentiment. There were more widespread reports of firms expecting prices to increase at a faster pace going forward and “more widespread reports of declining economic activity” at the end of May. All Districts reported elevated levels of economic and policy uncertainty, leading to a cautious approach to business and household decisions.
Finally, retail sales of motor vehicles for May showed a further unwind of front-loaded demand from Mar and Apr. Motor vehicle sales slowed again in May to 16.1m annualized – with the pullback only slowing to the 2024 average at this stage. But this will still drag on retail sales and spending reports in the short term. The current Atlanta Fed GDP Nowcast shows US growth for Q2 remains elevated at +3.8% – but due mostly to the favorable unwind of the growth in imports in Mar. The contribution from personal spending has continued to edge lower.
Central bank decisions last week also continued to reflect uncertainty over the impacts of tariff policy. The ECB cut rates as expected with inflation now judged to be settling around its 2% medium-term target. The decision reinforced the high degree of uncertainty surrounding the economic outlook due to trade and tariff policies, which is expected to lead to weaker growth for the remainder of the year. The BoC remained on hold, noting a softer, but not sharply weaker economy. The decision noted a “clear consensus to hold policy unchanged as we gain more information”.
Outlook for the week ahead; US CPI & PPI for May
The economic effects of tariffs are likely to be interconnected, influencing firms’ profitability through price pass-through decisions, inflation, consumer spending, and the labor market outlook. The scale of these effects is highly uncertain. Following last week’s insights into the US labor market and firm activity and sentiment, this week’s attention turns to US inflation data. With inflation reports remaining favorable over the past few months, the CPI & PPI reports for May are set to track any tariff-related effects.
It’s the blackout period ahead of the FOMC meeting next week, so there will be no Fed speeches this week.
Key factors & events to watch this week;
US CPI is expected to firm slightly in May;
- Headline CPI is expected to increase by +0.2% over the month in May, the same as in Apr.
- Headline inflation is expected to increase to +2.5% in May, up from +2.3% in Apr.
- Core CPI is expected to increase to +0.3% in May, up from +0.2% in Apr. Core inflation is expected to increase to +2.9% over the year in May, up from +2.8% in Apr.
US PPI is also expected to firm and will be important for the PCE view of inflation for the FOMC next week.
- Headline PPI is expected to increase by +0.2% in May after falling -0.5% in Apr. Headline PPI is expected to increase by +2.6% over the year in May, up from +2.4% in Apr.
- Core PPI is expected to increase by +0.3% in May, up from a -0.4% fall in Apr. Core PPI is expected to increase by +3% over the year in May, from +3.1% in Apr.
Chinese trade data for May will also provide further insight into tariff impacts on activity.
- Export growth over the year was expected to slow from +8.1% in Apr to +5% in May (actual was lower than expected at +4.8% – so Chinese export growth slowed notably in May).
- Imports were expected to fall slightly by -0.9% in May, from -0.2% in Apr. Actual imports fell by -3.4% in May – more than expected.
This week, the US Treasury will auction and/or settle approx. $456bn in ST Bills, Notes, and Bonds, raising approx. $14bn in new money.
QT this week: Approx $10.9bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $0.4bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 2, 2025
Key events this week; US Non-farm Payrolls, ISM & S&P PMI surveys, Fed Speeches, ECB & BoC Meetings
Recap from last week: US Growth Amid Tariff Distortions
Following our focus in recent weeks, we continue to examine an economic landscape heavily influenced by the evolving trade policy. The broader theme from last week and for this coming week is the health of the US economy – and the degree to which we are starting to see any broadening out of tariff effects. The latest FOMC minutes also offered insights into the Fed’s perspective on inflation and growth risks amid the tariff agenda. New data last week provided a further snapshot of US domestic demand, business activity, and inflation.
The tariff agenda remains in a state of flux. Some of President Trump’s tariffs were deemed illegal under ’emergency powers’, though a stay was granted, keeping them in place while the appeal is considered. This legal uncertainty implies a further protracted path of negotiations with trade partners. Compounding this, news of higher tariffs on steel and iron imports also emerged. These developments ensure that tariffs continue to be a significant source of uncertainty and unpredictability for the economic outlook.
Tariff-driven inflation and uncertainty were two of the key themes from the latest FOMC Minutes. However, the Minutes of the 6-7 May meeting were before the important 12 May announcement of the US-China reprieve agreeing to lower tariffs for 90 days. Based on that view of the tariff outlook, the Minutes highlighted concerns that tariffs could complicate the disinflationary process by leading to persistent inflation, market disruptions, and negative effects of elevated uncertainty on broader sentiment and the economic outlook. The FOMC acknowledged that the tariff announcements had increased concerns over the near-term outlooks for both inflation and growth. Committee participants agreed that the risks of higher inflation and higher unemployment had risen. With policy settings still seen as “moderately restrictive,” the Committee believed that it was well-positioned to wait for more clarity on the outlook for inflation and economic activity. Speeches since then have maintained this wait-and-see approach as the tariff and policy agenda continues to evolve.
While policymakers voiced concerns over the potential for higher tariff-led inflation, the latest PCE inflation data for Apr showed little impact from tariffs so far. To date, it’s been survey measures reflecting a concerning trend of more widespread increases in prices – but these surveys don’t show the magnitude of the price increases, nor the degree of pass-through. It’s still unclear how big the tariff impact will be on inflation. In Apr, both headline and core PCE inflation measures came in lower than expected. Headline PCE inflation slowed to +2.15% and core PCE inflation slowed to +2.5% over the year. Core services inflation was notably slower at +0.1% with a drag from portfolio management fees which is likely to rebound next month. However, a potential broadening of tariff effects into core goods was hinted at, with the monthly rate up to +0.5% led by furnishings and durable household equipment and recreational goods & vehicles. The trimmed mean alternative view of underlying inflation was unchanged at +2.5% over the year and the monthly rate remained at +0.2%, unchanged for the last six months. This reflects a steady pace of monthly underlying inflation, remaining on more of a sideways trajectory. This likely underscores the Fed’s concern about the starting point for inflation under the new tariff regime: where inflation is still elevated relative to the 2% target and has been above that target for five years now.
A key theme from the rest of the data last week centered on the health of the US domestic economy and specifically the US consumer. Beyond prices, the data offered insights into how the core US economy, particularly the consumer, is faring under these highly uncertain conditions and whether tariff effects are beginning to manifest more broadly in domestic demand. The data reflected a slowdown in consumer spending growth, but that spending remained resilient and supported by solid labor market and income conditions in Apr. The increase in saving (income surplus) seems aligned with the more dour sentiment among households through Q1.
The second estimate of US Q1 GDP was little changed with aggregate demand contracting slightly less by -0.08% in Q1. Underneath that headline, the key story was the downward revision to Q1 personal consumption growth, from +0.4% to +0.3%. Context is important and this slower growth follows considerably higher growth over the past three quarters, which averaged +0.86%, and occurred despite the significant weakening of consumer sentiment in Q1. Removing the distortions from net trade and inventories the Real Private Domestic Final Purchases (PDFP) measure of private domestic demand did slow to +0.5% in Q1 but remained at a still solid +2.8% over the year. While growth in personal consumption slowed, growth in private fixed investment accelerated, notably in non-residential equipment.
The Apr personal spending data pointed to resilient consumer spending. While real spending growth in Apr slowed to +0.1%, this was preceded by a substantial +0.7% increase in Mar. In other words, the higher spending levels from Mar were sustained into Apr – though the mix shifted, and this was despite the Mar spending likely reflecting some pull-forward of auto sales ahead of tariffs. The risk is that any pull-forward of demand due to tariffs may still reverse later as demand normalizes.
Importantly, spending was supported by another solid gain in personal income in Apr, rising +0.8% from +0.7% in Mar. While this was mostly due to a change in transfer payments, employee compensation growth slowed only slightly in Apr to +0.5% (from +0.55% in Mar), reflecting solid labor market conditions. Similarly, personal income excluding transfer payments increased by +0.4% in Apr – also equalling the average monthly increase of 2024 – and only slightly slower than the larger increase in Mar. The higher income growth and slower spending growth resulted in another increase in personal savings in Apr. This seems fairly consistent given the substantial weakening in consumer sentiment through Q1. Sentiment has stopped falling as tariff rhetoric has softened, but any rebound in the outlook sentiment has been modest so far.
The preliminary Apr goods trade balance was a key release last week, highlighting a sharp reversal in the drag from goods trade on growth. The goods trade deficit narrowed notably, almost halving after imports fell and export growth accelerated in nominal terms. This shift in trade dynamics, directly influenced by the evolving tariff landscape, had a notable effect on the latest iteration of the Atlanta Fed GDP nowcast for Q2 GDP growth. After all the data last week, the US growth run rate now sits at a more robust +3.8% in Q2. This figure was primarily driven higher by a substantially larger contribution from the narrowing goods trade deficit, more than offsetting a softening in the contribution from personal consumption expenditures and private domestic investment.
Outlook for the week ahead; US Non-farm Payrolls, ISM & S&P PMI Surveys, Fed Speeches, ECB & BoC Meetings
Our focus remains on tracking shifts in the US economy’s progress, mindful of the potential for higher inflation, slower growth, and distortions stemming from the evolving tariff policy. Building on the insights from last week, the spotlight turns to the US labor market data for May – crucial for gauging the consumer’s ongoing resilience. The ISM and S&P PMIs for May will further provide early insights into how private sector firms are responding to the shifts in the tariff outlook.
Key factors & events to watch this week;
US labor market – May
- US non-farm payroll growth is expected to slow to +130k in May, from +177k in Apr. While revisions will be important, so will the composition of payroll growth – to assess the degree to which tariff effects are potentially starting to broaden out among key industries.
- Despite slower payroll growth, the unemployment rate is expected to remain unchanged at 4.2% in May.
- Average weekly hours are expected to be unchanged at 34.3.
- The JOLTS survey for Apr is expected to show job openings remaining little changed at 7.1m.
- Initial claims remain on our radar with both initial jobless claims remaining elevated and continuing claims yet again reaching the 1.9m level.
- The Challenger Job Cut Announcement survey for May will provide some further insight into future planned layoffs by firms. Job cut announcements have been elevated through Q1 – suggesting a rise in layoffs on the horizon.
US ISM PMIs – May
- The US ISM surveys for manufacturing and services will provide an important gauge reflecting how firms are responding to shifts in the tariff landscape – through orders, inventories, the labor market, and prices.
US Fed speeches
- There will be a range of Fed speeches this week – with several speeches focusing on the Economic Outlook – including Governors Waller, Cook, and Kugler. This is usually an important topic, providing some insights into how Fed officials are seeing and characterizing the latest inflation, growth, and spending data.
- Fed Chair Powell will give opening remarks on Monday.
- The latest Fed Beige Book will be released, providing a summary of important anecdotes from Fed regional contacts on the economy.
Central Bank Meetings & Minutes
- The ECB will meet this week and is expected to cut its benchmark Deposit Facility Rate by 25bps.
- The BoC is also expected to cut its benchmark rate by 25bps.
- The minutes of the latest RBA meeting will be released, where the RBA cut rates for the second time in this cycle. We’ll be looking for details of the discussion regarding the size of the rate cut.
Euro area CPI – prelim for May is expected to show inflation moderating. Headline CPI is expected to slow to +2% in May from +2.2% in Apr. Core CPI is expected to slow to +2.4% in May from +2.7% in Apr.
Canada’s labour market is expected to deteriorate further in May, with the net employment change to decline by 15k after only a modest +7.4 increase in Apr. The unemployment rate is expected to edge higher to 7% from 6.9% in Apr.
Finally, the broader suite of global S&P PMIs for May will be released this week. The global composite output index slowed notably last month, as both services and manufacturing output growth momentum slowed.
This week, the US Treasury will auction and/or settle approx. $404bn in ST Bills, with a net paydown of $38bn.
QT this week: Approx $5.2bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
