by Kim | May 26, 2025
Key events this week; US PCE inflation & prelim goods trade balance, FOMC minutes, & RBNZ meeting
Recap from last week: Navigating the Economic Crosscurrents: Tariffs, Inflation, Growth, and Sentiment
We pick up on a similar theme to last week as we continue to navigate the economic landscape amid the crosscurrents of evolving trade policy. The economic landscape remains subject to the immediate and unpredictable element of trade policy, a reality sharply underscored by renewed tariff threats late last week – which have, for now, been postponed. This week, we examine how preliminary PMI data for May reflects business responses to this highly uncertain environment, analyze the mixed inflation picture, and assess how global central banks are attempting to balance their mandates against the unpredictable tariff wildcard.
We again lean heavily on the leading S&P prelim PMIs for May to provide an up-to-date picture of how businesses and countries are responding to this uncertain backdrop. Broadly, the prelim PMIs for May did show that the tariff reprieves have indeed provided a boost to business confidence and sentiment in future output growth. However, in the US especially, underlying concern about future tariff issues, supply chain disruptions, and rising prices persisted.
The improvement in US manufacturing activity hints at some contribution from tariff front-running – with the headline PMI higher due to increasing lead times and a notable increase in inventories. Output growth increased from a stalled pace driven by domestic demand while new export orders contracted. The increase in new orders was driven by a combination of tariff front-running and reports of switching from new domestic customers. This helped to offset the drag from another fall in employment. In the US services PMI, output activity rebounded from the fall in Apr, but there was an especially sharp fall in services new export orders. Across both sectors, the PMIs indicate that pricing pressure continued to intensify in May – and extended to manufacturing selling prices this month. The fall in both US services and manufacturing payrolls, plus inventory stocking among manufacturers, reflects the still subdued optimism and caution in the outlook.
Weaker activity and sentiment due to trade uncertainty are still evident in Japan and to a lesser extent in Australia. The Eurozone’s weakness was driven more by weaker services, but the data acknowledges the potential for tariff-related “front-running” to have helped stabilize manufacturing output.
Global CPI reports provided a mixed view of the inflation picture – but had a similar theme; stickier underlying inflation.
The Euro Area headline inflation was stable at +2.2% in Apr with falling energy prices offsetting higher food price inflation. Core inflation jumped to +2.7% (from +2.4% in Mar), as services inflation accelerated back up to +4% in Apr.
The UK CPI report for Apr came in higher than expected – with expectations already higher due to annual increases in the energy/utilities price cap, a rise in the vehicle excise duty, Easter calendar effects, and the introduction of the new payroll tax. While some contributions are considered “one-off,” the immediate impact is higher inflation. Headline UK CPI increased by +3.5% over the year in Apr, up from +2.6% in Mar. Core CPI jumped to +3.8% in Apr from +3.4% in Mar.
Japan’s measures of inflation accelerated in Apr – across both annual and monthly measures. The BoJ preferred core CPI ex fresh food accelerated further in Apr to +3.5% from +3.2% in Mar – led by food excluding fresh food, housing, fuel/light/water, and culture & recreation, including a +3.1% increase in energy prices over the month. The fall in Education prices (reduction in public high school fees) offset some of these increases. While core inflation measures are still above the recently revised BoJ forecasts, the BoJ expects underlying inflation readings to moderate in the second half – in line with notably reduced growth forecasts. At the last meeting, the BoJ stayed on hold until the effect of tariffs and trade negotiations on prices and activity became clearer.
Canada’s headline CPI slowed to +1.7% in Apr due to falling energy prices (including the removal of the consumer carbon price). However, underlying inflation accelerated; both the trimmed mean and median measures increased to their highest levels in over six months, with the two measures averaging +3.1% in Apr, up from +2.8% in Mar.
After seeing disinflationary progress from higher rates, underlying inflation pressures have remained sticky in April – and it’s unclear how persistent this will be. Confronted with a highly uncertain shock from tariffs, central banks are striving to balance their mandates of price stability and full employment. Last week’s decisions (RBA, ECB minutes) reflected a consistent approach to that challenge: either cutting rates as insurance against downside growth risks, or waiting (as with the Fed) to observe tariff (and broader policy) developments, yet still favoring cuts.
The RBA cut the cash rate by 25bps as expected last week, citing easing inflation supported by low unemployment, and a pre-emptive element against a highly “unpredictable” tariff and trade backdrop. Growth and inflation forecasts were revised lower, while the unemployment rate was forecast to edge higher in the medium term. Governor Bullock noted that the Board had determined that “global trade developments will overall be disinflationary for Australia”, an important context for the RBA view on the impact of tariffs. The current monetary policy stance was deemed as “somewhat less restrictive,” which suggests that there is scope for further cuts, amid the highly uncertain environment.
The ECB minutes confirmed the details of the recent decision to cut rates, citing confidence in the disinflationary process, effective transmission of policy, and “insurance against negative economic outcomes stemming from escalating US tariff proposals.” The outlook remained cautious given that retaliatory tariffs and fiscal spending could push prices higher, and the overall unpredictability of global trade policy is also weighing on growth. The ECB reiterated its data-dependent approach, maintaining full optionality, and stressing the need for agility to react quickly if necessary.
In an interview last week, Fed Governor Waller noted that rate cuts were still possible if tariff rates settled at the lower end of the range.
Outlook for the week ahead; US PCE inflation & prelim goods trade balance, FOMC minutes, & the RBNZ meeting
As the new trade and tariff regime continues to take hold, data releases this week will offer insights into shifts in US sentiment, economic performance, and inflation dynamics.
Key factors & events to watch this week;
The Fed-preferred PCE inflation for Apr is expected to be little changed – based on the latest Cleveland Fed PCE inflation nowcast for Apr, though there is a range of forecasts;
- Headline PCE inflation is expected to increase by +0.19% over the month in Apr, up from 0% in Mar. Assuming no revisions in the prior month, the annual rate would increase by +2.2%, down from +2.3% in Mar.
- According to the Cleveland Fed nowcast, core PCE inflation is expected to increase by +0.21% over the month in Apr, up from 0% in Mar. Assuming no revisions to Mar, the annual rate would remain at +2.6% over the year in Apr. Other estimates suggest that the increase in core PCE inflation over the month will be lower at +0.1% – and in this case, the annual rate would slow to +2.5% in Apr, from +2.65% in Mar.
US Growth Inputs – there will be various data releases that will feed into a more robust update of the Atlanta Fed US Q2 GDP growth nowcast – currently sitting at +2.4% for Q2
- One of the most awaited data releases will be the prelim goods trade balance for Apr. This has widened notably in Q1, and especially in Feb and Mar, as firms have front-run expected tariff increases. The goods trade balance is expected to narrow to -$141bn from -$163 in Mar.
- Personal spending for Apr is expected to slow to +0.2% over the month from +0.7% in Mar.
- Personal income growth is expected to slow to +0.3% in Apr from +0.5% in Mar.
- Durable goods orders for Apr are expected to fall by -7.9%, reversing the stronger increase in Mar of +7.5%.
- The second prelim estimate of US Q1 GDP is expected to confirm the -0.3% decline in GDP over the quarter.
- The Conference Board and Michigan (final) consumer sentiment surveys for May are expected to show a slight improvement in sentiment though remaining subdued.
Central Banks
- The FOMC minutes of the latest meeting on 7 May will be released. The FOMC kept policy settings unchanged at this meeting and reiterated its 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 will be numerous speeches this week – see the Fed calendar for details – HERE.
- The RBNZ is expected to cut rates by 25bps at its meeting this week.
This week, the US Treasury will auction and/or settle approx. $679bn in ST Bills, Notes, Bonds, TIPS, and FRNs, raising approx. $134bn in new money.
QT this week: Approx $40bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $1.9bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed and roll-off the balance sheet.
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 | May 19, 2025
Key events this week – S&P Prelim PMIs May, RBA meeting, CPI: Japan, UK, Canada, and the Euro area
Recap from last week – Navigating the Economic Crosscurrents: Tariffs, Inflation, Growth, and Sentiment
We continue to navigate shifts in the economic landscape amid the crosscurrents of evolving trade policy. This past week offered a crucial snapshot of the US economy’s early Q2 growth and inflation performance under the nascent trade and tariff regime. The shifting tariff goalposts have created uncertainty for businesses, consumers, and policymakers. Meanwhile, the impact on and outlook for inflation remain uncertain, but initial hard data for US Q2 growth has largely shown resilience, yet is still challenged by pockets of weakness and downbeat sentiment.
The inflation picture at the start of Q2 continues to be shaped by concerns over above-target inflation, coupled with uncertainty about the impact of tariffs on inflation. Both Fed Vice Chair Jefferson and Governor Kugler’s speeches built on the FOMC’s acknowledgment that risks to both sides of the dual mandate have increased. Both speeches underscored the concern that, given inflation remains above target, tariffs pose an upside risk to inflation. There is still uncertainty over the scope and level of tariffs, the degree to which they will be passed through, and importantly how persistent inflation from tariffs may be. Governor Kugler quoted a Dallas Fed survey that found that 55% of Texas business executives expect to pass through most or all of the costs from higher tariffs to customers. Of those, 64% expect this pass-through to occur within the first three months after the tariffs take effect. That would suggest that tariff-related price increases may be observed soon (Source: Gov Kugler speech).
The impact on prices will hinge on the path and settlement of tariff rates. In the interim, the announcement of a 90-day reprieve from the significantly higher US-China tariffs generated optimism this past week. Tariffs between the US and China will remain at a reduced level during this truce. With the 90-day pause on reciprocal tariffs nearing its midpoint, trade talks have been prioritized among some countries. However, adding to the evolving landscape, US President Trump announced that his administration would begin to set the reciprocal tariff rates for other countries “over the next two to three weeks” (source: Bloomberg).
With the more tangible impact of tariffs on inflation likely still on the horizon, the Apr US CPI offered a slightly cooler reading than expected over the month. The annual headline rate also eased by slightly more than anticipated. Core goods prices continued to make a positive contribution to the change in headline inflation between Apr and Mar, while core services made the largest contribution to the deceleration in annual inflation, along with food and energy categories. Measures of underlying inflation – indicating where inflation might be headed – show a mixed picture. The trimmed mean continues to show progress on disinflation; however, the trend indicates that the underlying pace of disinflation has been slowing. PPI inflation over the month surprised notably to the downside to -0.5% over the month and there was a larger upside revision to the monthly rate in Mar (revised up from -0.4% to 0% in Mar). PPI services were the main contributor to the downside surprise in Apr (portfolio mgt fees & airline fares fell). Together, the CPI and PPI provide a guide for the important PCE inflation result. The Cleveland Fed Inflation Nowcast of PCE inflation over the month in Apr (as of 16 May) shows headline PCE inflation growth of +0.19% and core +0.21% over the month. Core PCE would stay at +2.6% over the year.
The first view of important Q2 growth data showed signs of resilience. The Atlanta Fed GDP Nowcast for US Q2 growth edged higher to +2.4% after data releases. This is still an early reading on growth for Q2 and will continue to evolve over the coming weeks. There was a positive contribution from retail sales and industrial production. US nominal retail sales growth slowed to +0.1% in Apr after a strong, upwardly revised +1.7% in Mar. While this reflects at least sustained spending after the strong Mar result, there is a risk that the pull-forward of demand (notably in autos) may reverse as demand normalizes in the near term, with tariff impacts as a key variable. Industrial production was flat in Apr after falling Mar – as declines in manufacturing and mining output were offset by growth in utilities output. The first US regional manufacturing surveys for May generally showed demand conditions had stabilized, with improvements in future output expectations (not including the response to the US-China tariff reduction reprieve), though input price pressures persisted. There was a small negative contribution to Q2 growth from housing starts, which came in a little lower than expected but increased slightly from the weaker result in Mar. New home builder sentiment fell notably in May.
US consumer sentiment indicators edged lower across most measures in the prelim report for May. However, the survey did capture some early reactions to the news of the 90-day reprieve/reduction on tariffs between the US and China – which seemed to be positive for sentiment. The final reading for May should reflect a broader reaction to the news.
Outlook for the week ahead; S&P Prelim PMIs May, RBA meeting, CPI: Japan, UK, Canada, and the Euro area
As the new trade and tariff regime continues to take hold, data releases will continue to offer an early glimpse into shifts in sentiment, economic performance, and inflation dynamics. While it will generally be a lighter data week, there will be several releases of interest, including the S&P prelim PMIs for May. Other highlights include US existing and new home sales and important inflation data for Japan, the UK, Canada, and the Euro area. The RBA meets and the ECB minutes will be released this week. The tariff backdrop should remain positive with hints of further trade agreement frameworks to be announced in the coming weeks.
Key factors & events to watch this week;
S&P Prelim PMI’s May
The S&P Prelim PMIs for May should provide one of the first reactions to last week’s announcement of the US-China reduced tariff reprieve. This reaction is likely to show up in the future output expectations and sentiment components. The May prelim report should also have a more robust business reaction to the reciprocal tariff pause (back on the 9 Apr). The Apr PMIs reflected a slowdown in growth momentum against a backdrop of the initial tariff and reciprocal tariff announcements, rising prices, and weakening sentiment. Therefore, this week’s PMI data will be crucial in determining if these trends persisted into May and if the various tariff reprieves resulted in a boost to activity and business outlook.
Central Banks
- The RBA meets this week and is expected to cut rates by 25bps for only the second time in this cycle. The last meeting was on 1 Apr, just before the ‘Liberation Day’ tariff announcement amid a heightened sense of uncertainty in the outlook. In considering the path of rates, the Board needed confidence that inflation would continue to move in the right direction. The Q1 CPI helped to confirm the continued progress on disinflation with core CPI easing back to the upper target band, while last week’s labour market survey for Apr recorded strong employment growth and a continuing trend of low unemployment.
- The ECB Minutes of the last meeting will be released this week.
- US Fed speeches; there will be numerous speeches this week, several of which are scheduled Commencement or Baccalaureate speeches (Fed Chair Powell). See the Fed calendar for details – HERE.
Global inflation data – CPI for Apr
- Euro area CPI for Apr (final) is expected to confirm headline inflation at +2.2% over the year and core inflation at +2.7% over the year.
- Canada’s CPI for Apr is expected to slow to +1.6% over the year from +2.3% in Mar. Monthly inflation is expected to increase by +0.5% in Apr, up from +0.3% in Mar.
- UK headline CPI is expected to increase by +3.3% over the year in Apr, up from +2.6% in Mar. Core CPI is also expected to increase by +3.6% in Apr, up from +3.4% in Mar.
- Japan’s National CPI is also expected to increase. The BoJ-preferred core CPI – ex fresh food, is expected to increase by +3.5% in Apr, up from +3.2% in Mar.
US data – housing & regional manufacturing surveys
- US existing home sales are expected to increase to 4.15m (annualized) in Apr, up from 4.02m in Mar.
- New home sales are expected to remain lackluster, slowing to 0.696m (annualized) in Apr, from 0.724m in Mar.
- The Kansas City Fed Manufacturing Index for May will be released this week.
This week, the US Treasury will auction and/or settle approx. $434bn in ST Bills, with a paydown of approx. $12bn. The US Treasury will also auction the 20-year Bond and 10-year TIPS this week – both will settle at the end of the month.
QT this week: Approx $14.1bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
Next Monday is the US Memorial Day Holiday.
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 | Mar 31, 2025
Key events this week – US tariff announcement, US non-farm payrolls & ISM surveys, Fed Chair Powell speech, RBA meeting, global S&P PMI’s Mar
Recap from last week: US inflationary pressures persist amid slowing growth
US data last week reflected a tension between signs that inflation pressures are persisting and signs that growth is slowing. Announcements of auto tariffs last week, ahead of a broader tariff announcement due this week, are fuelling consumer and business expectations of inflation in the near-term, and driving sentiment lower. At the same time, there are signs that US growth is slowing through Q1.
Last week’s reports underscored persistent inflation pressures and rising inflation expectations among households and businesses. Firstly, US PCE price inflation for Feb confirmed this trend, with headline inflation steady at +2.5% but the monthly rate slightly firmer. More concerningly, core PCE inflation rose to +2.8%, driven by increases in both core goods (now no longer deflationary) and core services. This suggests that progress on disinflation may be stalling.
Secondly, a further weakening in sentiment was influenced by expectations of rising inflation and this was broadly reflected in both consumer and business surveys last week. The consumer sentiment reports last week were consistent; there is a divergence between relatively stable, albeit low, sentiment readings for current conditions contrasting with a notable weakening in the outlook for personal finances, business conditions, unemployment, and inflation. Consumers are saying ‘Things aren’t great now, but the outlook is causing notable unease’.
Among businesses, the US S&P prelim PMI showed an improvement in private sector output in Mar – but conditions were mixed. A rebound in services output more than offset the marked fall in manufacturing output. There was a question about the durability of the services expansion. Rising input costs were a key theme of the report, highlighting that cost pressures had intensified across both sectors, but especially in manufacturing. While manufacturing firms were passing through these higher input costs, the report noted that concerns over sluggish demand were hampering service firms’ ability to pass on higher costs – despite the improvement in services activity output this month. The fall in the business outlook was led by concerns over policy initiatives, while firms also cited weakening customer demand.
Amid this persistent inflation, last week also brought further evidence of slowing growth. Business concerns over slowing demand were reflected in Feb’s slower-than-expected personal spending growth. Personal spending growth did rebound in Feb, but by less than expected, while the fall in spending for Jan was revised lower. In real terms, personal spending increased by a modest +0.1% in the month. It was notable that spending on services fell by -0.1% in real terms in Feb, led by a -1.4% fall in food services & accommodation – the third weak month in a row. Spending on goods did rebound in Feb, but only partially offset the fall in goods spending in Jan. The effect of the Auto tariff announcement last week may boost personal spending in the short term as demand may be pulled forward ahead of the tariff.
A relatively bright spot in the data was the personal income report for Feb – suggesting that, overall, the footing of the consumer/households remained solid, despite the dour outlook. Total personal income growth accelerated in Feb by more than expected – although growth was led mostly by an increase in “other” government transfer receipts (not a sign of economic strength, but there was no increase in unemployment insurance payments), however, employee compensation growth also accelerated. The other bright spot remains the relatively low and stable initial jobless claims – a near-term indicator suggesting that labor market conditions have not deteriorated more recently.
Zooming out to overall US economic growth, the latest estimate of GDP tracking for Q1 paints a similar picture of deceleration. The Atlanta Fed GDP nowcast for Q1 slowed further this week, now indicating an adjusted -0.5% growth rate for the quarter, with another month of data remaining to close out the quarter. While domestic demand (excluding external factors) remains positive, its pace has also moderated.
Outlook for the week ahead; US tariff announcement, US non-farm payrolls & ISM surveys, Fed Chair Powell speech, RBA meeting, global S&P PMI’s Mar
The focus this week is likely to remain firmly on the tariff announcement expected on 2 Apr and its implications for growth and inflation. The details will be important including the scope of tariffs, expectations of further tariff announcements, and general timing for actions.
On the data flow, the US non-farm payrolls and labor market report for Mar will take center stage this week and will be crucial for assessing consumer fundamentals and implications for the consumption outlook. There will also be several important Fed speeches this week, including Fed Chair Powell, Vice Chair Jefferson, and Governor Cook, all speaking about the economic outlook.
Key factors to watch this week;
US non-farm payroll growth is expected to slow in Mar.
- Non-farm payrolls are expected to increase by +139k in Mar, edging down from +151k in Feb. As always, the direction of revisions will be important.
- The unemployment rate is expected to be unchanged at 4.1% in Mar.
- The average workweek is expected to increase to 34.2 hours/week.
- Job openings for Feb are expected to slow only slightly to 7.73m from 7.74m in Jan.
- The Challenger Job Cut Announcement survey for Mar will be closely watched. The Feb report showed a marked increase of 172k job cut announcements led by, but not limited to, government job cuts.
- Initial claims are expected to edge slightly higher to +227k for the week ending 29 Mar.
Other US data will also provide input into the growth trajectory for the final month of Q1;
- The US ISM surveys for Mar are expected to show a slowdown in manufacturing activity while services activity is expected to continue expanding at a moderate pace.
- Factory Orders for Feb are expected to increase by +0.5%, down from +1.7% in Jan.
There will be several US Fed speeches this week. The key speeches will be US Fed Chair Powell (Fri), Vice Chair Jefferson, and Governor Cook, all speaking on the economic outlook.
The RBA will meet this week and is expected to keep policy settings unchanged with the cash rate target at 4.10%. At the prior meeting, the RBA Board reduced the cash rate for the first time in this cycle, noting increased confidence in inflation progress. Yet, the Board remained cautious on the prospects of further easing. Guidance from this meeting will be important.
Other important data out this week includes;
- The latest ECB minutes of the latest meeting.
- The prelim Euro area CPI for Mar is expected to ease to +2.2% over the year and remain unchanged at +0.4% over the month. Core CPI is expected to ease to +2.5% over the year in Mar, down from +2.6% in Feb.
- Canada’s labour market report for Mar will be important from the perspective of gauging progress on the current recovery and any impact so far from trade and tariff announcements. Employment growth is expected to remain low at a net +9.9k for the month. The unemployment rate is expected to increase to 6.7%.
- The broader suite of global PMIs for Mar will be released this week. The flash PMIs for Mar showed broadly that services output had continued to grow and build on the first two months of the year, whereas manufacturing output continued to contract – and to a greater extent than in the prior two months.
This week, the US Treasury will auction and/or settle approx. $688bn in ST Bills, Notes, Bonds, and TIPS, raising $121bn in new money.
QT this week: Approx $21bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $19bn of Notes & Bonds will be redeemed and roll off the fed balance sheet.
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 | Mar 3, 2025
Key events this week – US labor market for Feb, Fed speeches, ISM surveys, ECB meeting, China NPC, and tariff announcements
Recap from last week: Progress on inflation and the evolving US economic outlook.
As we approach the next FOMC meeting on 18-19 Mar, the US economic landscape continues to evolve. Data last week showed encouraging signs of slowing underlying inflation in Jan, yet simultaneously cast doubt on the narrative of the robust economic expansion, a concern currently based on limited hard data. This week, we add the critical US labor market component for Feb to our analysis as we build a more comprehensive view ahead of the Fed’s upcoming decision.
At its last meeting, the FOMC maintained its policy stance, citing the need for further disinflation progress before considering rate cuts, supported by a solid labor market and economy. The Jan PCE inflation data showed encouraging signs of progress on disinflation, coming in below expectations. Core PCE inflation slowed to +2.65% over the year, a step down from +2.9% in Dec, and below the +2.8% rate where it seemed to stall through late 2024. Seasonality was a key consideration in this report and importantly, monthly inflation data moderated compared to the higher figures of a year ago. This is a development that is likely to be welcomed by the FOMC. While core goods inflation remained relatively firm, core services inflation, a key area of concern, showed signs of easing. Specifically, core services inflation slowed to +3.4%, and core services excluding housing also slowed to +3.1%. Despite these positive developments and the general progress on disinflation, short-term annualized rates suggest that further disinflation may proceed at a more gradual pace.
However, the elevated inflation rate at the end of 2024 was not the only concern on the inflation front for the FOMC. The Committee was also worried about the upside risks to the inflation outlook from the potential impact of tariffs and changes to immigration policy. The uncertainty around policy has yet to be resolved, so this may still weigh on the FOMC decision.
Beyond policy concerns, the data may already be reflecting potential tariff-related pressures, clouding the economic outlook. The threat of tariffs appears to coincide with two developments. The first is the emergence of rising cost pressures observed in the US S&P prelim PMI report for Feb and now also across the regional manufacturing surveys for Feb, suggesting that price increases on raw materials became more widespread in Feb (including the Dallas, Kansas, Empire State, and Philadelphia Fed manufacturing surveys for Feb).
The second was the notable step down in the US growth outlook for Q1. The Atlanta Fed GDP nowcast for Q1 GDP growth shifted sharply lower from +2.3% growth at the start of the week to a -1.5% contraction by the end of the week. The key driver of that decline was the increase in the goods trade deficit led mostly by a +32% increase in imports of industrial supplies for the month – possibly reflecting orders to front-run potential tariff price increases.
However, the fall in personal spending for Jan also contributed to the weaker growth outlook. While this fall was expected based on the Jan retail sales results, it does raise some uncertainty over the outlook for consumption growth. So far, it’s one month of weaker consumption spending and comes off the back of four months of much stronger growth leading into the end of 2024. Personal income growth was stronger than expected in Jan, led higher (in nominal terms) by cost-of-living adjustments on transfer payments, but labor income growth also remained stable.
Given the uncertainty over the growth outlook and some improvement on inflation progress, markets are now pricing in almost three rate cuts this year (at the time of writing), with cuts to resume in Jun (Source: CME FedWatch).
Outlook for the week ahead; US labor market for Feb, Fed speeches, ISM surveys, ECB meeting, China NPC, geopolitical and tariff headline risk.
Given this uncertain US growth backdrop, the US labor market data for Feb, and what it means for income and growth, will be crucial for understanding the evolving economic backdrop. Ahead of the blackout period next week, there are also several key Fed speeches which will provide some context for how Fed members are thinking about the economic outlook.
Key factors to watch this week;
US labor market conditions in Feb
- US non-farm payrolls for Feb are expected to increase by +156k, slightly higher than Jan at +143k. The direction of revisions will be important.
- The unemployment rate is expected to be unchanged at 4% in Feb versus 4% in Jan.
- The average weekly hours are expected to increase back up to 34.2 hours in Feb from 34.1 in Jan.
- Average hourly earnings are expected to slow to +0.3% over the month, from +0.5% in Jan, but remain unchanged at +4.1% over the year.
- On more of an anecdote front, the Challenger Gray Job Cut Announcement survey for Feb may provide some further insight into labor market conditions.
- We continue to monitor initial claims data to gauge the impact of government layoffs.
- The JOLTS survey for Jan will be released on 11 Mar.
US data releases this week will primarily focus on production for Jan and Feb with a combination of hard and survey data.
- The ISM manufacturing and services PMI for Feb will be released – and it will be important whether they confirm the direction of the S&P Prelim PMIs for Feb (which recorded a notable slowdown in services activity in Feb).
- The Fed Beige Book may provide some important anecdotes about consumption, growth, prices, and the labor market since the last release on 15 Jan.
- US Factory Orders for Jan are expected to increase by +1.5% in Jan after falling by -0.9% in Dec. The advance durable goods orders for Jan increased by more than expected due to an increase in the larger value aircraft orders in the month.
The final US Fed speeches before the blackout period next week, ahead of the FOMC meeting on 18-19 Mar.
- US Fed Chair Powell will give a speech on the Economic Outlook on Fri 7 Mar.
- Fed Governor Waller will also give a speech on the Economic Outlook on Thur 6 Mar.
- The Fed Vice Chair Williams is also scheduled to give several speeches this week.
- There will also be a range of other speeches on Fri 7 Mar by Governor Bowman and Kugler.
The ECB is expected to cut rates this week;
- The ECB will kick off the next round of central bank meetings this week. Markets expect the ECB to cut rates by 25bps to 2.5%. The minutes of the last meeting showed that the Governing Council agreed that the disinflation process was well on track, while the growth outlook continued to be weak. Services inflation was widely seen as the key inflation component to monitor during the coming months. Last week, the Jan Euro area services inflation remained stuck at +3.9%, however, the negotiated wage rates easing in the Dec quarter could give the ECB some comfort over the outlook for services inflation.
- The prelim Euro Area CPI for Feb is expected to show underlying inflation slow further to +2.5% from +2.7% in Jan.
Data outside of the US;
- Australia’s GDP for Q4 is expected to increase to +0.5% over the quarter, lifting from +0.3% in Q3. The latest RBA minutes for the 18 Feb meeting will be released.
- Canada labour market update for Feb; net employment growth is expected to slow to +18k in Feb.
The full suite of S&P global PMIs for Feb will be released this week.
Further news on tariffs for China, Canada, and Mexico is expected this week – and headline risk remains elevated.
At the same time, the Chinese National People’s Congress will take place in Beijing this week – and stimulus measures are expected to be announced together with the key economic targets for the year (source: Bloomberg 3 Mar 2025).
This week, the US Treasury will auction and/or settle approx. $469bn in ST Bills, with a net paydown of -$6bn.
QT this week: Approx $2.4bn 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 | Feb 24, 2025
Key events this week – US PCE inflation, durable goods orders, Q4 GDP, and ECB minutes
Recap from last week: Navigating the push and pull of US policy uncertainty.
The Jan FOMC minutes revealed several key themes, but prominent was the underlying uncertainty surrounding US policy and its potential impact on the inflation outlook. The Committee had kept rates unchanged at the last meeting after cutting 100bps at the prior three meetings. The Committee noted that it was “well positioned” to take time to assess the evolving outlook for economic activity, the labor market, and inflation. Labor market conditions and economic activity were seen mostly in a positive light. The main theme repeated in various ways throughout the minutes was that inflation remains somewhat elevated, with upside risks to the inflation outlook. Upside risks stemmed from 1) core PCE ending 2024 at a higher than projected level despite some better monthly results in Nov and Dec and, 2) other factors;
However, other factors were cited as having the potential to hinder the disinflation process, including the effects of potential changes in trade and immigration policy as well as strong consumer demand. Source: FOMC Minutes 28-29 Jan 2025
There was also some difference in views over the degree of restrictiveness of current policy settings. Finally, there was a discussion about how the resolution of the debt ceiling could impact reserves and that it could be appropriate to pause quantitative tightening (QT).
The effect of the push and pull from the evolving US policy outlook also emerged in last week’s data. The most notable impact was in the S&P Prelim PMIs for Feb with services activity/output slipping markedly into a slight contraction for the first time in several years. The manufacturing output index reflected continued expectations of growth. The overall US composite output index slumped to a near-stall pace of 50.4 in Feb;
New order growth also weakened sharply and business expectations for the year ahead slumped amid growing concerns and uncertainty related to federal government policies. The upturn in manufacturing output was also in part linked to the front-running of tariffs, hinting at merely a temporary boost. Source: S&P US Flash PMI – Feb 2025
In the latest S&P PMI survey, optimism in the outlook fell to the lowest level in over two years due to increased uncertainty for business from spending cuts and tariffs, concerns over higher prices, and “broader geopolitical developments”. It will be important to see how this survey result aligns with the upcoming ISM surveys for Feb and also how it translates into ‘hard data’.
The Michigan consumer sentiment survey also recorded a marked fall in sentiment in Feb. The falls in sentiment differed across party affiliations – unchanged for Republicans with falls recorded among Democrats and Independents. Again, it will be important to see how this aligns with the Conference Board consumer sentiment results this week.
Aligning with the prelim manufacturing PMI, the US regional manufacturing surveys continued to indicate positive conditions. Housing data reflected ongoing lackluster conditions. New home builder sentiment fell notably across all regions. Growth in the issue of new permits remained flat. New housing starts fell back in Jan after a stronger Dec, with the largest falls recorded in the South (likely weather-related). Existing home sales also fell notably in Jan, across all regions. For now, news of wide-ranging government job cuts has yet to broadly impact initial jobless claims, though claims in the DC area have ticked up. Initial jobless claims remain at the 12-week average.
The updated Atlanta Fed GDP nowcast for US Q1 growth was unchanged at +2.3% last week (based only on the addition of housing starts data for Jan). However, the path of the FFR did evolve last week – with conditional probabilities now reflecting two possible cuts this year (at the time of writing; Jun and Dec cuts) (Source: CME Fedwatch).
The RBA reduced the cash rate for the first time in this cycle, citing faster-than-expected progress on underlying inflation. However, there is a high degree of caution on prospects for further easing and more detailed guidance was suspended. The Board noted that upside and downside risks to inflation remain, and that policy needs to remain restrictive to ensure that disinflation progress does not stall. The Jan labour market results remained strong with above-average employment growth. The unemployment rate increased slightly due to the increase in participation to another new all-time high.
The RBNZ cut rates by 50bps as expected. The Board noted that while inflation remained within the target band, ‘significant spare capacity in the economy’ indicated that a further reduction in the OCR was appropriate.
More broadly, the S&P prelim PMIs for Feb continued to reflect shifting momentum. The prelim PMI release covers the US, UK, Germany, France, Japan, the broader Eurozone, and Aus. The prelim manufacturing PMI’s improved across most countries, except in the UK. Despite the improvement, manufacturing activity remained in contraction, albeit to a lesser extent, across most countries except in the US and Aus. The recent stronger momentum across services slowed in Feb – led by marked falls in the US, France, and Germany to a lesser extent.
Outlook for the week ahead; US PCE inflation, durable goods orders, and Q4 GDP, and ECB minutes.
The focus this week shifts to assessing progress on US PCE inflation and growth data and what they mean for the path of US rates.
Key factors to watch this week;
US annual PCE inflation is expected to ease in Jan.
- Using the latest Cleveland Fed PCE nowcast for PCE inflation, headline PCE inflation is expected to increase over the month to +0.38% in Jan from +0.26% in Dec. While lower than the same month a year ago (+0.42%), inflation at this monthly pace is still not consistent with the 2% target. The annual PCE inflation rate is expected to slow to +2.51% in Jan, from +2.55% in Dec.
- Core PCE inflation is expected to increase over the month to +0.37% in Jan from +0.16% in Dec. This would still be slower than the same month a year ago (which was +0.5% in Jan 2024). Annual core PCE inflation is expected to ease to +2.66% in Jan, from +2.8% in Dec.
- The FOMC projections in Dec 2024 showed core PCE slowing to +2.5% by the end of 2025.
- Of concern for the Fed has been core PCE inflation stalling at +2.8% for the last three months of 2024, having slowed to a low of +2.63% in Jun 2024.
Central banks;
- ECB minutes of the latest meeting will be released this week.
- US Fed speeches will be limited this week. Vice Chair for Supervision Barr will give several speeches on financial stability and supervision. Governor Bowman will give a speech on community banking. See the calendar for other speeches.
US data releases this week will primarily focus on production, spending, and income growth for Jan.
- The second estimate for US GDP in Q4 is expected to be unchanged at +2.3% annualized.
- US durable goods orders are expected to increase by +2% in Jan, up from -2.2% in Dec.
- Personal income growth is expected to slow to +0.3% in Jan from +0.4% in Dec.
- Personal spending growth is expected to slow to +0.2% in Jan from +0.7% in Dec.
- New home sales are expected to slow to a 0.677m annualized pace in Jan, from 0.698m in Dec. Pending home sales are expected to fall by -1.3% in Jan after a -5.5% fall in Dec.
Data outside of the US will focus on inflation and growth;
- The final Eurozone CPI for Jan is expected to confirm annual headline inflation at +2.5% and annual core inflation at +2.7%. Euro area country-level prelim CPI’s for Feb will begin to be released this week also. There will be several Euro-area GDP reports to be finalized for Q4; both Germany and France’s results are expected to confirm a contraction in GDP in Q4 of -0.2% and -0.1% respectively. German election results will likely stay in focus through the week, along with broader European geopolitical events.
- The Aus monthly CPI series (different from the comprehensive quarterly report) is expected to show headline inflation unchanged at +2.5% in Jan.
- Tokyo CPI will provide a preview of broader Japanese inflation for Feb. Tokyo CPI ex-fresh food is expected to slow to +2.3% over the year, from +2.5% in Jan. Last week Japanese national core CPI ex-fresh food came in higher than expected over the year, firming to +3.2% in Jan from +3% in Dec.
This week, the US Treasury will auction and/or settle approx. $680bn in ST Bills, Notes, FRNs, TIPS, and Bonds raising approx. $50bn in new money.
QT this week: Approx $35bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $10bn in Notes and Bonds will mature on the Fed balance sheet and will be redeemed/roll off the balance sheet.
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
