Solid Labor Market

This week was packed with major economic data including inflation, the labor market, and overall economic activity. There were no significant surprises, however, and mortgage rates ended the week with little change.

Gross Domestic Product (GDP) is the broadest measure of economic activity. During the first quarter of 2025, U.S. GDP fell 0.3%, below the consensus forecast for an increase of 0.4% and down from growth of 2.4% during the fourth quarter. The last decline was in the first quarter of 2022. The results were heavily influenced by a 41% surge in imports, as businesses and consumers raced to purchase items before higher tariffs kicked in. In fact, imports took a massive 5 percentage points off the results. A slowdown in consumer spending and government expenditures also contributed to the weakness. Looking ahead, though, the purchases which were pulled forward to beat the tariffs likely will reduce the amount of imports needed in future quarters, raising GDP readings. 

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. In March, Core PCE was 2.6% higher than a year ago, down from an annual rate of increase of 3.0% last month, and the lowest level since March 2021. Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021. The big question is how large an impact higher tariffs will have on future inflation levels. 

Investors will continue to look for additional information about tariff policies. The next Fed meeting will take place on Wednesday. Most investors do not expect a reduction in the federal funds rate, but they will be eager for guidance for later in the year. For economic reports, the ISM national services sector index will come out on Monday and the Trade Deficit on Tuesday.